Reports & Studies

This is an archival or historical document and may not reflect current policies or procedures.

1938 Advisory Council

The 1938 Advisory Council was jointly chartered by the Social Security
Board and the Senate Finance Committee. Some members of the Senate Finance
Committee (principally, Senator Arthur Vandenberg (R-MI)) wanted an opportunity
to revisit key features of the 1935 Act (particularly the issue of reserve
funding, which Vandenberg opposed) and hoped to use the Advisory Council
to achieve this aim.

In its Report, the Advisory Council recommended a fundamental shift in
the Social Security program, away from a defined benefit retirement plan
for individual workers, to a family benefit plan, with dependents and
survivors benefits. The Council's Report went to the Social Security Board
(SSB) and to a special Select Committee of the Senate Finance Committee.
This was the starting event of a legislative process which ultimately
yielded the 1939 Amendments.

The Council's Report went to the Social Security Board (SSB), which reviewed
it and issued its own report. The Board's Report differed in some respects
from the Council's report. The Board's report concentrated on a host of
administrative issues which the Council did not consider. For example,
the SSB requested Congress to give it authority to issue subpeonas and
conduct investigations, and to make all Board decisions final, i.e., to
eliminate any appeals process in Social Security cases. These two ideas,
which were not accepted by Congress, certainly would have altered the
administrative history of the Social Security program.

On the two main policy changes, both Reports were in agreement. Both proposed
adding dependents and survivors benefits to the basic Social Security
retirement program; and both proposed advancing the date for monthly benefits
to begin from 1942 to 1940. And the Congress accepted both ideas. Both
the Council and the Board also recognized the desirability of a disability
benefits program, but neither was prepared to recommend it in 1938.

Since the Board's responsibilities extended to the whole range of programs
under the 1935 Act, their Report covered in detail issues related to unemployment,
health care and public assistance, as well as the old-age insurance program.

The 1938 Council was especially concerned about issues of financing, and
much of its report is taken up with an extended discussion of the financial
underpinnings of Social Security. Especially noteworthy in the Council's
Report is the special Appendix added to address Senator Vandenberg's concerns
about reserve funding. The issue is the same one that appears in debates
of the present day. People have always had trouble reconciling the idea
of investing the Social Security surplus in government securities. This
was the core of Vandenberg's opposition to reserve funding. The Council
did not, as Vandenberg hoped, advocate any departure from the reserve
funding, indeed it strengthened this approach by creating formal Trust
Funds to hold the Social Security reserves and, in the Appendix, basically
rejected Vandenberg's criticisms of the investment of Social Security
surpluses in government securities.

The Advisory Council of 1938 was important for two key reasons. First,
it firmly established the precedent of periodic outside advisory councils
to provide guidance to Social Security's policymakers. Secondly, it recommended
a fundamental shift in the Social Security program, away from a retirement
plan for individual workers, to a family benefit plan. Much of the agenda
of the 1938 Advisory Council and the Social Security Board's Report was
enacted into law in the 1939 Social Security Amendments.

The Advisory Council of 1938 was important for several reasons. First,
it firmly established the precedent of periodic outside advisory councils
to provide guidance to Social Security's policymakers. Secondly, it recommended
a fundamental shift in the Social Security program, away from a defined
benefit retirement plan for individual workers, to a family benefit plan,
with dependents and survivors benefits. And the recommendations of the
Council were largely enacted into law in the 1939 Amendments.

The following is the text of the Report issued by the Council. This report
went to the Social Security Board and to the Senate Finance Committee.
The Social Security Board then issued its own
Report, based on the Council's work, and this report became the Administration's
legislative proposal to the Congress.

FOREWORD

The Advisory Council on Social Security was appointed by the Senate Special
Committee on Social Security andthe Social Security
Board in May, 1937. The following announcement, which was issued at that
time, explains the purposes for which the Council was appointed and lists
its members:

"At a hearing before the Committee on Finance of the United States
Senate on February 22, 1937, it was agreed that the Chairman of the Committee
on Finance would appoint a special committee to cooperate with the Social
Security Board to study the advisability of amending Titles II and VIII
of the Social Security Act. The Chairman of the Committee on Finance has
appointed such a special committee consisting of Senator Pat Harrison,
Senator Harry Flood Byrd, and Senator Arthur H. Vandenberg. It was agreed
that this special committee in cooperation with the Social Security Board
would appoint an Advisory Council on Social Security to assist in studying
the advisability of amending Titles II and VIII of the Social Security
Act.

"It is desired that the Advisory Council on Social Security cooperate
with the Special Committee of the Committee on Finance of the United States
Senate and with the Social Security Board in considering the following
matters

"(1) The advisability of commencing payment of monthly benefits
under Title II sooner than January I, 1942;

"(2) The advisability of increasing the monthly benefits payable
under Title II for those retiring in the early years;

"(3) The advisability of extending the benefits in Title II to persons
who become incapacitated prior to age 65;

"(4) The advisability of extending the benefits of Title II to survivors
of individuals entitled to such benefits;

"(5) The advisability of increasing the taxes less rapidly under
Title VIII;

"(6) The advisability of extending the benefits under Title II to
include groups now excluded;

"(7) The size, character and disposition of reserves;

"(8) Any other questions concerning the Social Security Act about
which either the Special Senate Committee or the Social Security Board
may desire the advice of the Advisory Council.

"It is understood that the Social Security Board will make all necessary
studies and furnish all necessary technical assistance in connection with
the consideration of the foregoing subjects. It is further understood
that these subjects will be considered jointly by the Advisory Council,
the Special Senate Committee, and the Social Security Board.

"The Special Committee on Social Security of the Committee on Finance
of the United States Senate and the Social Security Board join in appointing
the following persons to serve as members of an Advisory Council on Social
Security:{1}

The Council held its first meeting in Washington on November 5th and
6th, 1937. Other meetings have been held in December, 193,7; and February,
April, October and December, 1938. To provide for the continuous study
of the problems before the Council and to plan the agenda of the full
sessions of the Council, an Interim Committee of the Council was appointed.
This Committee, including two representatives of industry, two representatives
of labor, and three representatives of the public, has held frequent meetings
during the past year and has been of great assistance to the Council in
its work. At the same time, the individual members of the Council have
continued their study of the questions before the Council through the
use of a large number of documents and reports prepared by the Social
Security Board and the Interim Committee. Discussions at meetings have
been supplemented by a large volume of correspondence among the members
of the Council and between them and the Social Security Board.

The Social Security Board has been most generous in assigning a large
number of its research and administrative technicians for protracted periods
to the preparation of material requested from time to time by the Council.
At the meetings both of the Council and of the Interim Committee, the
principal officials of the Board have afforded their help in the study
of the technical aspects of the problems before the Council. At the invitation
of the Council, experts from the Treasury Department and the Post Office
Department have been present when subjects affecting these Departments
have been considered.

In addition to the assistance afforded by the Social Security Board,
the Council has received valuable suggestions from the members of the
Senate Special Committee. It has also studied the proposals concerning
old-age security advanced by a large number of bodies representing industry,
labor, professional, social welfare and general citizen groups. The recommendations
developed by committees of experts and by individual students of social
insurance have been carefully analyzed and examined. To the extent time
has permitted, the Council has invited a number of outstanding experts
on various aspects of the problem of old age security to present their
views orally.

In accordance with the terms of its appointment, the Council has concentrated
its attention on problems connected with the old-age insurance program
established by Titles II and VIII of the Social Security Act and the means
by which the program there established might be improved or extended.
While keenly interested in the other phases of social security affected
by the Social Security Act as a whole, the Council considered its specific
task to be concerned with these two titles of the law, including their
relation to the old-age assistance program provided in Title I.

From time to time in the course of its deliberations, the Council has
submitted to the Senate Special Committee and the Social Security Board
interim recommendations or statements on subjects upon which immediate
comment seemed desirable. In December, 1937, the Council unanimously approved
proposals developed by the Social Security Board for the amendment of
Titles II and VIII in regard to coverage. The amendments then approved
are outlined in the body of this report. On April 29, 1938, the Council
made further recommendations as to coverage, which are likewise repeated
herein, and also approved a statement concerning the financing of the
old-age insurance system which will be found in the appendix of this report.

The recommendations which follow, while stated in principle, have been
developed through intensive study of the practical problems involved in
their application. In the course of the deliberations, the Council has
had before it a series of carefully developed proposals, accompanying
financial and actuarial studies, and administrative provisions in outline
form. Each proposal, applying the principles under discussion, has been
examined in order to test the principle involved and its practicability.
The Council in presenting its recommendations has confined itself to statements
of principle supplemented by brief summaries of the reasons for each conclusion.

SUMMARY OF RECOMMENDATIONS

A. Recommendations on benefits

I. The average old-age benefits payable in the early years under Title
II should be increased.

II. The eventual annual cost of the insurance benefits now recommended,
in relation to covered payroll and from whatever source financed, should
not be increased beyond the eventual annual disbursements under the 1935
Act.

III. The enhancement of the early old-age benefits under the system should
be partly attained by the method of paying in the care of a married annuitant
a supplementary allowance on behalf of an aged wife equivalent to fifty
per cent of the husband's own benefit; provided, that should a wife after
attaining age 65 be otherwise eligible to a benefit in her own right which
is larger in amount than the wife's allowance payable to her husband on
her behalf, the benefit payable to her in her own right will be substituted
for the wife's allowance.

IV. The minimum age of a wife for eligibility under the provision for
wives' supplementary allowances should be 65 years; provided, that
marital status had existed prior to the husband's attainment of age 60.

V. The widow of an insured worker, following her attainment of age 55,
should receive an annuity bearing a reasonable relationship to the worker's
annuity; provided, that marital status had existed prior to the
husband's attainment of age 60 and one year preceding the death
of the husband.

VI. A dependent child of a currently insured individual upon
the latter's death prior to age 65 should receive an orphan's benefit,
and a widow of a currently insured individual, provided she has in her
care one ormore dependent children of the deceased husband,
should receive a widow's benefit.

VII. The provision of benefits to an insured person who becomes permanently
and totally disabled and to his dependents is socially desirable. On this
point the Council is in unanimous agreement. There is difference of opinion,
however, as to the timing of the introduction of these benefits. Some
members of the Council favor the immediate inauguration of such benefits.
Other members believe that on account of additional costs and administrative
difficulties, the problem should receive further study.

VIII. In order to compensate in part for the additional cost of the additional
benefits herein recommended, the benefits payable to individuals as single
annuitants after the plan has been in operation a number of years should
be reduced below those now incorporated in Title II. If the national income
should increase in future years, these reductions may not be necessary.

IX. The death benefit payable on account of coverage under the system
should be strictly limited in amount and payable on the death of any eligible
individual.

X. The payment of old-age benefits should be begun on January 1, 1940.

B. Recommendations on coverage

I. The employees of private non-profit religious, charitable, and educational
institutions now excluded from coverage under Titles II and VIII should
immediately be brought into coverage under the same provisions of these
Titles as affect other covered groups.

II. The coverage of farm employees and domestic employees under Titles
II and VIII is socially desirable and should take effect, if administratively,
possible, by January 1, 1940.

III. The old-age insurance program should be extended as soon as feasible
to include additional groups not included in the previous recommendations
of the Council and studies should be made of the administrative, legal,
and financial problems involved in the coverage of self-employed persons
and governmental employees.

C. Recommendations on finance

I. Since the nation as a whole, independent of the beneficiaries of the
system, will derive a benefit from tho old-age security program, it is
appropriate that there be Federal financial participation in the old age
insurance system by means of revenues derived from sources other than
payroll taxes.

II. The principle of distributing the eventual cost of the old-age insurance
system by means of approximately equal contributions by employers, employees,
and the government is sound and should be definitely set forth in the
law when tax provisions are amended.

III. The introduction of a definite program of Federal financial participation
in the system will affect the consideration of the future rates of taxes
on employers and employees and their relation to future benefit payments.

IV. The financial program of the system should embody provision for a
reasonable contingency fund to insure the ready payment of benefits at
all times and to avoid abrupt changes in tax and contribution rates.

V. The planning of the old-age insurance program must take full account
of the fact that, while disbursements for benefits are relatively small
in the early years of the program, far larger total disbursements are
inevitable in the future. No benefits should be promised or implied which
cannot be safely financed not only in the early years of the program but
when workers now young will be old.

VI. Sound presentation of the government's financial position requires
full recognition of the obligations implied in the entire old age security
program and treasury reports should annually estimate the load of future
benefits and the probable product of the associated tax program.

VII. The receipt of the taxes levied in Title VIII of the law, less the
cost of collection, should through permanent appropriation be credited
automatically to an old-age insurance fund and not to the general fund
for later appropriation to the account, in whole or in part, ac Congress
may see fit. It is believed that such an arrangement will be constitutional.

VIII. The old-age insurance fund should specifically be made a trust
fund, with designated trustees acting on the behalf of the prospective
beneficiaries of the program. The trust fund should be dedicated exclusively
to the payment of the benefits provided under the program and, in limited
part, to the costs necessary to the administration of the program.

X. The problem of the timing of the contributions by the government,
taking into account the changing balance between payroll tax income and
benefit disbursements, is of such importance as to require thorough study
as information is available.

XII. Following the accumulation of such information, this problem should
be restudied for report not later than January 1, 1942, as to the proper
planning of the program of payroll taxes and governmental contributions
to the old-age insurance system thereafter, since by that time experience
on the basis of five years of tax collections and two years of benefit
payments (provided the present Act is amended to that effect) will be
available. Similar studies should be made at regular intervals following
1942.

REPORT

Introduction

The Social Security Act became law on August 14, 1935. A major
purpose of the statute was to provide a constructive program for meeting
the growing national problem of old-age dependency. Under Title I of the
Act provision was made for Federal subsidies to approved state programs
for old-age assistance. By the use of the method of assistance, encouraged
and aided under this Title, needy persons already old or becoming old
in the future without the opportunity of accumulating sufficient rights
to benefits under an insurance program were afforded basic protection
against want. Under Titles II and VIII, through separate provisions for
old-age benefits and payroll taxes on employers and employees, there was
established, in effect, a national system of old-age insurance. The method
of insurance was approved by Congress as a means of preventing old-age
dependency and of assuring protection to qualified individuals as a matter
of right, withoutthe use of the means test. These two
measures provide a coordinated approach to a well rounded program of old
age security.

The old-age benefits provided in Title II of the Social Security Act
are payable to qualified persons 65years of age and over commencing
January 1, I942. The amount of benefit is determined by the application
of graduated percentages to the total covered earnings of the beneficiary
under the system prior to age 65. A minimum monthly benefit of
$10 is established as well as a maximum monthly benefit of $85. It is
estimated that the average monthly benefit payable by 1945 under existing
provisions would be approximately $19. Persons not qualified to receive
the monthly benefit at the time of attainment of age 65, or the estates
of persons dying before that age,receive a settlement
equivalent in amount to 3.5 per cent of wages covered under the program.
Under the present legislation no provision is made for the supplementary
protection of male annuitants with a dependent aged wife, for the protection
of the aged widow, or the younger widow and dependent, surviving children
of a deceased wage earner except upon a means test under Titles I or IV.

Under Title VIII of the Act, payroll taxes are levied upon covered employers
and employees commencing at the rate of one per cent on each in the years
1937-39, one and one-half per cent in the years 1940-42, and rising one
half of one per cent on each in three-year intervals until a permanent
rate of 3 per cent on each is reached in 1949. The proceeds of such taxes
are covered into the generalfunds of the Treasury. Congress
is authorized under Title II of the Act to appropriate to an old-age reserve
account each year an amount sufficient as an annual premium to provide
for the payment of the benefits afforded, suchamount
to be determined on a reserve basis in accordance with accepted actuarial
principles. Investment of amounts credited to the account is limited to
the securities issued or guaranteed by the Federal government and yielding
not less than a 3 per cent return. The amount of payroll taxes collected
through November, 1938,was $963,800,000. The amount in the old-age reserve
account at that time was nearly $1,132,700,000, of which $830,300,000
was invested in special Treasury notes bearing 3 per centinterest,
approximately $300,000,000 was held to thecredit of
the appropriation made by Congress, and nearly $2,400,000 was held by
the Treasury disbursing officer for the paymentof benefits.
Payments from the account forlump-sum settlements had
amounted to $10,000,000.

Since the enactment of the Social Security Act, the problem of old-age
dependency in this country has been studied more thoroughly than in any
other period in our history. Not only have the normal operations of the
Social Security Board made available a large amount ofadditional
material, but the research and actuarial staffs ofthe Board
have, during the past three years, had an opportunity forthe
analysis and interpretation of rapidly accumulating data. While such studies
are by no means definitive and must ever be subject to revision in the
light of new information, the estimates of the present and future problem
now available are of significance in planning any revision of our old-age
security program.

It is estimated that approximately 65 per cent of all persons aged 65
and over are wholly or partially dependent, of whom nearly one-third are
dependent on public or private social agencies and two-thirds on friends
and relatives. The number of aged persons in our population, moreover,
is steadily growing. In 1900 there were only 3,080,000 persons 65 and
over, representing 4.1 per cent of the population. These figures reached
6,634,000 or 5.4 per cent in 1930 and will be about 8,180,000 or 6.3 per
cent on January 1, 1939. Recent estimates by the National Resources Committee
indicate that by 1980 we may have over 22,000,000 persons aged 65 and
over, representing 14 to 16 per cent of the total population. Recognizing
these facts, it is possible to foresee that we shall have a growing number
of aged persons for whom some provision must be made. This has been the
experience of all industrial countries as their population became older
and industrialization advanced.

The experience thus far developed in the application of Title I of the
SocialSecurity Act is likewise of significance in planning
any revision of the old-age insurance provisions of the Act. The old age
assistance plan therein provided is already inoperation
in the 48 states, the District of Columbia, and the Territories of Alaska
and Hawaii. Over $800,000,000 has been expended by the Federal, state,
and local governments for this purpose since February 11, 1936, when Federal
funds first became available. Of this amount, it is estimated that about
$380,000,000 will be expended for this purpose during the calendar year
1938. During September, 1938, about 1,738,000 persons were in receipt
of old-age assistance in the states. This number has grown from the 206,000
who were in receipt of old-age assistance in 27 states at the end of 1934
just prior to consideration of the Social Security Act in Congress. The
average grant for old-age assistance was $19.21 for the month of September,
1938, but this varied from $6.37 in Mississippi to $32.39 in California.
A recent study by the Social Security Board of recipients accepted by
the states for assistance shows that about 35 per cent received less than
$15 per month, over 50 per cent amounts between $15 and $30, and nearly
15 per cent $30 and over. Of all married persons accepted for old age
assistance during 1937-38, over 40per cent had a spouse receiving
a separate grant. The total to an aged couple may therefore be substantially
higher than the general average.

In the month of September, 1938, about 21.6 per cent of all persons aged
65 and over were in receipt of assistance. This proportion varied from
54.5per cent in Oklahoma to 7.2 per cent in New Hampshire.

After a thorough consideration of the growing problem of old-age dependency
facing our country and of the experience thus far under the program of
old-age assistance, the Council is convinced of the wisdom of Congress
in establishing a contributory program of old-age insurance. The Council
believes that such a method of encouragement of self-helpand
self-reliance in securing protection in old age is essentially in harmony
with individual incentive within a democratic society. It is highly desirable
in preserving American institutions to remove from as many individuals
as possible, in the years to come, the necessity for dependency relief
and to substitute instead protection afforded as a matter of right, related
to past participation in the productive processes of the country. It is
only through the encouragement of individual incentive, through the principle
of paying benefits in relation to past wages and employment, that a sound
and lasting basis for security can be afforded.

The Council believes that the contributory insurance method safeguards
not only the wage earner but the public as well. By this method benefits
have a reasonable relation to wages previously earned, and costs may be
kept in control relative to tax collections. Through careful planning,
the continued payment of benefits can be assured without undue diversion
of funds needed for other governmental services. At the same time, the
routine nature of contributory old-age insurance permits the perfection
of effective administrative machinery. The Council is impressed by the
effectiveness already attained in the administration of old-age insurance
by the Social Security Board and believes that available skill in handling
large-scale accounting operations is sufficient to meet new problems successfully.

Since contributory old-age insurance possesses these advantages over
dependency relief or old-age assistance, it is in the public interest
that the insurance program be improved and extended to cover additional
groups. The Council is convinced of the necessity of gradual evolution
in the development of a broad social program such as this. At the same
time, the speed of evolution in a democratic society must be related to
the economic and social conditions present. The Council is cognizant of
the fact that a large amount of experience under similar insurance programs
has developed abroad and that only in recent years has our country realized
the necessity of social insurance systems under modern industrial conditions.

The Council is also aware of the great financial costs, particularly
in the future, involved in an insurance program. The pattern cannot be
larger than the cloth; the degree of security afforded must be limited
by the national income and the proportion of that income properly available
for any specific purpose. Old-age insurance is only one element in the
whole structure of governmental social services. The protection of the
aged must not be at the expense of adequate protection of dependent children,
the sick, the disabled, or the unemployed; or at the cost of impairing
such essential services as education and public health or of lowering
of the standard of living of the working population. However, the cost
of old-age insurance is by no means a net addition to the costs of government.
An old-age insurance program is not only an improvement upon the method
of relief, but is also aimed to control and reduce the inevitable pressure
to divert a larger and larger proportion of public funds in the form of
free pensions to aged persons. The value to society of preventing dependency
in old age, as far as possible, must be weighed against the cost of the
insurance method.

In the course of its study of the problem, the Council has become increasingly
impressed by the need to revise the existing old-age insurance program
in the direction of fitting the structure of benefits more closely to
the basic needs of our people, now and in the future. With limited funds
available for this type of insurance protection, the program will never
be sufficient to afford the ideal standard of life for our aged citizens
except in so far as insurance benefits are supplemented by individual
savings. As a means of affording basic protection, however, the existing
system can be much improved. With the advantage of more than three years
of further study and experience since the passage of the Act and with
a greatly enhanced public understanding of the method of social insurance,
the time seems ripe for the revision of the program to afford more adequate
protection to more of our people. At the same time, the Council has studied
the financial problems involved and the best means by which the costs
may be met. With a view to assuring basic protection for the largest possible
number of our people, the Council has thoroughly reexamined the principles
upon which the financial aspects of the existing program were planned.

In the following outline of its recommendations, the Council has departed
somewhat from the precise order of the questions submitted to it by the
Senate Special Committee and the Social Security Board. In the deliberations
of the Council, it was found that the logical development of its conclusions
could best be presented under the following headings:

1.The improvement in the structure and scope of benefits.

2. The expansion of the system to cover a larger proportion of the population.

3. The best method of financing the program and of handling the necessary
funds.

The Council has sought in this way to answer to the best of its abilitythe questions submitted for its consideration.

RECOMMENDATIONS AND CONCLUSIONS

A. Recommendations on benefits

I. The average old age benefits payable in the early years under
Title II should be increased.

Since it is the purpose of old-age insurance to prevent dependency in
old age, the benefits payable under the program should, as soon as possible,
be sufficient in amount to afford the aged recipient at least a minimum
subsistence income. This does not mean that minimum old age benefits
must always exceed maximum old-age assistance grants since the
two types of payment are based on different considerations in the individual
case. Further, old-age benefits and old-age assistance grants cannot be
properly compared in terms of national averages but should be examined
relative to state or community conditions as to wage levels, living costs,
and assistance grants. After study of such comparisons, however, the Council
believes that in a considerable proportion of cases, the schedule of old-age
benefits established in Title II will not provide reasonable benefits
in the early years of the program. While, in some cases, it will be necessary
to supplement insurance benefits by assistance grants despite any reasonable
enhancement of early benefit payments, it is sound public policy to reduce
this overlap considerably. Only by relieving a large proportion of the
beneficiaries under the insurance system from the necessity of resorting
to old age assistance to supplement their benefits, will the social advantages
of old age insurance be realized.

The policy of paying higher benefits to persons retiring in the earlier
years of the system than are the equivalent of the individual contributions
is already established in the present Act. Such a policy is not only sound
social insurance practice but has long been recognized as necessary in
private pension programs. Only through the payment of reasonable benefits
can older workers be retired. It is believed that the reasoning which
led to the application of the principle in the law in 1935 inevitably
leads to a further application of the principle in the light of experience
now available. The methods by which it is proposed to accomplish this
are outlined in this report.

Since old-age insurance benefits are related to past wages, the upward
adjustment of early minimum benefits in line with this recommendation
can be attained only in terms of minimum needs as related to such wages,
and not, as in old-age assistance, through investigation in the individual
case. The Council is convinced that the structure of the benefit schedule
can be adjusted to meet more effectively the needs of insured persons
retiring in the early years of the system. At the same time, it believes
that the payment of higher benefits to persons retiring in the earlier
years of the system than are the equivalent of their individual contributions
should not be at the expense of reasonable differentials in benefit payments
as related to taxable wages earned. As the system matures it may be advisable
to limit more strictly the "unearned" portion of the benefit
payments where persons have spent but short periods of their working lives
in covered employment.

II. The eventual annual cost of the insurance benefits now recommended,
in relation to covered payroll and from whatever source financed, should
not be increased beyond the eventual annual disbursements under the 1935
Act. {1}

{1}
Several members of the Council believe, in view of the other types
of benefits which later may be added to the plan, that in adopting
revised old-age and survivors' benefits their eventual cost should
be kept within 10 per cent of payrolls, the original estimate of the
probable eventual cost of the present old age benefits when the Act
was adopted.

In considering specific improvements in the benefit structure under Title
II, the Council believes it to be essential to avoid proposals which would
increase the eventual annual disbursements under the old-age insurance
system above those involved in the present Act. While future years may
bring changes in these eventual disbursements, it is unwise at this time
to assign any larger share of our national income to old-age and survivors'
protection some decades hence while other pressing social needs exist.
The Council is agreed, however, that the annual benefit disbursements
in the earlier years of the program should be considerably increased in
order that the insurance system fulfill its proper function more adequately.
So far as possible, therefore, the Council has sought to level out the
progressive increases in the annual costs of the system to avoid a great
upward acceleration of future disbursements, at the expense of inadequate
protection in the early years, and at the risk of exceeding proper eventual
limits. While old-age insurance disbursements will increase in years to
come, a closer approximation of disbursements to available tax proceeds
is in itself desirable in financinga continuing social
insurance program.

It is possible to make only approximate estimates of the eventual disbursements
under any insurance program. Information now available indicates that
the benefit structure under Title II of the present Act will involve financing
from all sources of an annual disbursement equivalent to ten to twelve
per cent of covered payroll by 1980 when persons now in their twenties
will be at retirement age. {2}

{2} Two members of the Council who
are actuaries fear that the upper limit of the eventual cost of the
benefits provided by Title II of the present Act will be higher than
here estimated

The Council believesthat any revised benefit structure
recommended at this time should not involve eventual annual disbursements
in excess of this approximate level.

It is recognized that further periodic studies of the disbursements under
the program will permit a refinement of present actuarial estimates just
as existing estimates are in turn a refinement of those made before the
initiation of the program. It is reasonable to expect that surveys in
the years to come may lead to a revision of best judgments concerning
the probable eventual cost of any program. The Council is agreed that
the recommendations for revisions in the existing benefit structure here
submitted can be reasonably implemented within the eventual cost limit
now suggested.

It is understood by all members of the Council that this recommendation
relates only to the benefits recommended unanimously and does not apply
to the disability benefits referred to in Recommendation VII.

III. The enhancement of the early old-age benefits under the
system should be partly attained by the method of paying in the case of
a married annuitant a supplementary allowance on behalf of an aged wife
equivalent to fifty per cent of the husband's own benefit; provided,
that should a wife after attaining age 65 be otherwise eligible to a benefit
in her own right which is larger in amount than the wife's allowance payable
to her husband on her behalf, the benefit payable to her in her own right
will be substituted for the wife's allowance.

The inadequacy of the benefits payable during the early years of the
old-age insurance program is more marked where the benefits must support
not only the annuitant himself but also his wife. In 1930, 63.8per
cent of men aged 65and over were married. Payment of supplementary
allowances to annuitants who have wives over 65will increase
the average benefit in such a manner as to meet the greatest social need
with the minimum increase in cost. The Council believes that an additional
50 per cent of the basic annuity would constitute a reasonable provision
for the support of the annuitant's wife. To increase the annuity in all
cases, regardless of marital status, by this amount would, it is believed,
involve unwarranted costs. It is true that in some instances a single
annuitant will need to support an aged dependent relative. To make such
relatives eligible for allowances would create many administrative problems.
After careful consideration of many alternatives, the Council believes
the supplementary wives' allowance here proposed is an effective method
of enhancing early benefits in accordance with Recommendation I.

Among the possible alternative methods of raising the average level of
early benefits is that of a substantial readjustment of the present benefit
formula to raise materially the amount paid all persons on the basis of
the lowest segment of accumulated wages under the system. While
such a readjustment would enhance the level of early benefits, it would
likewise add a large and permanent burden of cost which would not be warranted
in the later years of the program after a large proportion of aged wage
earners had been under coverage for many years. The Council believes that
any adjustment in the benefit formula which raises the level of early
benefits should be so designed as to avoid adding to this eventual burden.
The method of the supplementary wives' allowance, while providing more
adequate protection where needed, meets this limitation, since the allowance
would be payable only where the wife is not eligible for a larger annuity
on her own account.

In addition, the Council believes that careful study should be given
to the substitution of an average wage formula for the accumulated
wage formula incorporated in the present Act. An average wage formula
would more readily permit an increase in the early benefit payments and
enable eventual costs to be kept within the limits prescribed under Recommendation
II. Furthermore, in Recommendation VI the Council is on record as approving
the average wage formula for computing survivorship benefits. By basing
all benefits under Title II upon average wages, simplicity of understanding
and administration is achieved as well as a consistent and related pattern
of benefit payments.

As indicated in Recommendation VIII hereafter, the Council recommends
that the cost of the program of wives' allowances here proposed be financed
in part through some reduction in the eventual rates of benefits payable
to individuals as single annuitants. Not only does such a readjustment
of the benefit structure seem socially desirable but such an adjustment
can and should be made without doing violence to the principle of individual
equity in the case of widowers, bachelors, and women workers, since such
persons should receive in all cases insurance protection at least equal
in value to their individual direct contributions invested at interest.

IV. The minimum age of a wife for eligibility under the provision
for wives' supplementary allowances should be 65 years; provided,
that marital status had existed prior to the husband's attainment of age
60.

This minimum age requirement with respect to eligibility for wives' allowances
appears to the Council to be necessary on the grounds of cost, internal
consistency of the program, and administrative feasibility. It is recognized
that the wives of a considerable proportion of aged men are several years
younger than the men themselves and that where thisdiscrepancy
in ages occurs, the payment of the wives' allowance will be delayed some
time after possible retirement of the husband. After thorough consideration
of all possible alternatives, the Council is convinced that the minimum
age requirement here proposed is necessary and justifiable at this time.

A reduction of the age for eligibility for wives' allowances to 60 would
involve anomalies and inequities between the wives of annuitants and women
with wage credits in their own account against which benefits would not
be payable until age 65. A reduction in the minimum age requirement to
age 60 for both wives' allowances and annuities toall women,
while eliminating such anomalies, would add greatly to the cost of the
program. Women annuitants are already heavily favored by the plan since
no account is taken in either contributions or benefits of their relatively
longer life. The Council believes such a large additional cost for this
purpose to be unwarranted so long as far more pressing needs exist.

The requirement that the wives' allowance be payable only where marital
status existed prior to the husband's attainment of age 60 is intended
to serve as protection against abuse of the plan through the contracting
of marriages solely for the purpose of acquiring enhanced benefits. If
the marriage takes place at least five years before any old-age benefits
can be paid, a reasonable assumption exists that it was contracted in
good faith.

V. The widow of an insured worker, following her attainment of
age 65, should receive an annuity bearing a reasonable relationship to
the worker's annuity; provided, that marital status had existed
prior to the husband's attainment of age 60 and one year preceding the
death of the husband.

A haunting fear in the minds of many older men is the possibility, and
frequently, the probability, that their widow will be in need after their
death. The day of large families and of the farm economy, when aged parents
were thereby assured comfort in their declining years, has passed for
a large proportion of our population. This change has had particularly
devastating effect on the sense of security of the aged women of our country.

Women as a rule live longer than men. Wives are often younger than their
husbands. Consequently, the probabilities are that a woman will outlive
her husband. Old age insurance benefits for the husband, supplemented
during his life by an allowance payable on behalf of his wife, fall considerably
short, therefore, of providing adequate old-age security.

Lump-sum death benefits, such as payable under the present Act, are a
very unsatisfactory and ineffective form of protection. The amount in
the individual case is quite unlikely to bear any reasonable relationship
to the needs of the surviving widow. Payable immediately in one sum, such
settlements are likely to be used for many other purposes long before
her old age.

The Council believes, therefore, that the old-age insurance program should
include provision for old-age annuities for the widows of all covered
workers. Where the worker had been an annuitant at time of death, it appears
reasonable that his widow, if 65 or over, should receive an annuity equal
to approximately three-fourths of the husband's annuity which would be
equal to one-half of their combined annuity. Similar protection should
be afforded if death occurred before the husband had reached old age.
In the latter event,, especially, there is some likelihood that the widow
may reenter covered employment. If so, a systematic procedure should be
available whereby she may build upon a deferredold-age annuity
accruing to her as a result of her deceased husband's earnings. By such
a supplement, the needs in old age of women becoming widows either early
or late in life can be more adequately met.

As in the case of wives' allowances, it is believed desirable to protect
the provisions for widows' benefits against abuse by the requirement of
a minimum period of marital status. It would also be necessary to provide
that such widows' benefits terminate on remarriage.

The cost of financing the program of widows' protection here recommended
can be met, in the judgment of the Council, from the savings to the system
in the revision of the present provisions for death benefits (as proposed
in Recommendation IX), and in the reduction of the eventual rates of old-age
benefits payable to single annuitants (as proposed in Recommendation VIII).
It is believed that such a readjustment in the benefit structure is both
in the public interest and equitable in its effect upon the various classes
of beneficiaries under the system and may be expected to reduce the costs
of old-age assistance.

VI. A dependent child of a currently insured individual upon
the latter's death prior to age 65 should receive an orphan's benefit,
and a widow of a currently insured individual, provided she has in her
care one or more dependent children of the deceased husband, should receive
a widow's benefit.

The Council believes that a program of survivors' insurance, intended
primarily for the protection of the dependent orphans of deceased wage
earners, is of as much importance to the community as an old-age insurance
program. While public assistance is now being provided to a large number
of dependent children in this country on a needs-test basis, the arguments
for substituting benefits as a matter of right in the case of children
are even more convincing than in the case of aged persons. A democratic
society has an immeasurable stake in avoiding the growth of a habit of
dependency among its youth. The method of survivors' insurance not only
sustains the concept that a child is supported through the efforts of
the parent, but affords a vital sense of security to the family unit.

The need for providing cash allowances for the care of dependent children
has long been recognized in this country. "Mothers' aid" legislation
was first adoptedover 25 years ago and was greatly expanded
through the program for aid to dependent children incorporated in the
Social Security Act in 1935. Over 626,000 children in 254,000families
were receiving aid during the month of September,1938. The total expenditures
for this aid in that month were over $8,000,000, of which less than one-third
was from Federal funds available through the Social Security Act. The
average amount of aid per family for the month of September was $31.72
or approximately $13 per dependent child.

A recent study made by the Social Security Board of families accepted
for aid to dependent children in 1937-38 showed that in about 43 per cent
such aid the father was dead.

While the expansion of aid to dependent children under the Social Security
Act has been gratifying, there is great need for further protection of
dependent children. In many instances, the aid is insufficient to maintain
normal family life or to permit the children to develop into healthy citizens.
Many deserving cases are not able to obtain any aid. Above all, the relief
method is not the most desirable way of meeting childhood dependency.
Social insurance offers an improved method of dealing with the problem.

A program of survivors' insurance providing for dependent children can
be most effectively administered in conjunction with an old-age insurance
program. Moreover, survivors' protection in the event of the early death
of a wage earner with young children is the counterpart of the protection
of the wage earner and his aged wife or widow should he live to retirement
after his children are grown. These two types of protection can, therefore,
be most effectively financed under a single insurance program. In addition
to the fact that lump sum settlements are undesirable, the death benefits
under the existing provisions of Title II, which are so payable, do not
provideadequate survivors' protection. The Council therefore
recommends that the savings to the system accruing through the elimination
of larger death benefits (proposed in Recommendation IX) be used in part
for the financing of a program of benefits to surviving dependent children.

The Council recommends that, in addition to benefits for such children,
benefits be payable to widows who have in their care one or more of their
children of the deceased wage earner. Such payments are intended as supplements
to the orphans' benefits with the purpose of enabling the widow to remain
at home and care for the children. It is recommended that as soon as the
last child attains the upper limit of age for eligibility for benefits,
the payments to the widow shall cease. This is not intended, however,
to affect her eligibility to an old age annuity on her attainment of age
65.

As contrasted with the payments to widows with dependent children, here
recommended, benefits to all younger widows would not only greatly
increase the cost of the total program but would, it is believed, divert
funds from more pressing social needs. It is normal for a large majority
of younger widows without dependent children to reenter employment. To
provide continuing benefits to such widows would create not only many
anomalies and inequities, but serious administrative difficulties as well.

In order to provide orphans' benefits of reasonable amount and related
to the normal income of the deceased wage earner, it is recommended that
such benefits be computed on a basis of average wages rather than of accumulated
earnings as now provided in the case of old age benefits under Title II.
Since death may occur at any age, average wages, on the one hand, and
the number of dependents, on the other, are the significant factors. Survivors''
insurance must be looked upon as current protection, closely related to
the current earning status of the insured worker. At the same time, reasonable
provision should be made for the continuance of insured status for a limited
time where a period of sickness or unemployment precedes the death of
the wage earner.

VII. The provision of benefits to an insured person who becomes
permanently and totally disabled and to his dependents is socially desirable.
On this point the Council is in unanimous agreement. There is difference
of opinion, however, as to the timing of the introduction of these benefits.
Some members of the Council favor the immediate inauguration of such benefits.
Other members believe that on account of additional costs and administrative
difficulties, the problem should receive further study.

With the growth of industry and urban life, the problem of providing
for wage earners who become permanently and totally disabled before the
age of retirement has become increasingly serious. While the number of
persons who reach old age is much larger than the number who become disabled
at younger ages, the latter state when it does materialize, is likely
to be of more serious concern to the individual, his family, and the community.
Moreover, protection against this hazard, except to the extent that workmen's
compensation coverage applies, is even further out of the question for
most wage earners than is protection against dependency in old age.

The members who favor the immediate inauguration of benefits for insured
persons who become permanently and totally disabled prior to their attainment
of age 65 and for their dependents call attention to the fact that this
class of persons (except for the blind) is the only category of permanent
social casualties who receive no insurance or assistance under the Social
Security Act. No provisions whatever are made for them except general
relief as administered by local communities, which is often entirely insufficient.
No other group in our population is more completely dependent or in a
more desperate economic situation. People who become permanently and totally
disabled before reaching retirement age are economically in the same position,
or a worse one, as those who are unable to work by reason of old age.
By making early provisions for people who are permanently and totally
disabled before age 65, it is hoped that much of the pressure for lowering
the retirement age will be relieved.

The members who believe that immediate provisions should be made to provide
protection for these unfortunates and their dependents recognize that
the determination of permanent and total disability gives rise to difficult
administrative problems and that a system of benefits such as they recommend
may increase the total eventual benefit costs beyond the estimated ultimate
costs of the benefits provided in the present law. They believe, however,
that the administrative difficulties and those of calculating the exact
costs are not so great as to warrant long continued delay. Nearly all
other countries which have old age insurance systems include protection
for the permanently and totally disabled and have not found the administrative
problems insurmountable. It is the opinion of these members, moreover,
that the administrative problems involved will never be solved until benefit
payments are actually begun. If the Social Security Act had not been launched
until all administrative difficulties had been solved, this Act would
never have been put into operation.

Regarding costs, the members who favor immediate action direct attention
to the fact that while estimates as to the eventual costs differ widely,
it is agreed that, at least for some years, the additional costs of providing
protection for this now unprotected group are but small. They also stress
that society now bears a large cost for the support and care of the permanently
disabled and their dependents in the form of relief and institutional
care. In large part, the benefits under Title II for the permanency and
totally disabled will not be additional costs but a shifting of costs
now borne in another form. For the unfortunates thus afflicted, however,
the plan of including permanent and total disability along with old age
insurance means the substitution of the certainties of insurance for the
uncertainties of relief.

While recognizing the desirability of providing protection against total
and permanent disability and the advantages of contributory insurance
as a method of attacking this problem, other members believe it is undesirable
to recommend the initiation of a program of disability insurance at this
time. The probable costs of such a program are extremely difficult to
determine. Costs will vary with a large number of factors. The range between
minimum and maximum estimates is wide. Until the probable costs of the
old-age and survivors' insurance, recommended in this report, can be more
accurately projected, it is unwise to recommend the assuming of the burden
of a distinctly new type of protection, the cost of which is indeterminate
and heavy.

Further, these members believe that disability insurance would introduce
many administrative problems of great difficulty, and of a character apart
from those involved in the program here recommended. The determination
whether total and permanent disability exists in each individual case
would not only require a highly skilled professional staff but would necessitate
intensive and sustained local investigation to prevent abuse. The experience
of the private insurance companies with total and permanent disability
insurance has been so unfavorable that it has caused heavy and unexpected
losses and has practically been abandoned.

These members believe that until coverage under thesocial
security program has been widened to include other large groups in the
population which are now excluded there would be added administrative
and financial problems resulting from shifts from uncovered to covered
employment. Until the whole question of health insurance is given further
consideration, definitive action on disability Insurance should be delayed.
With added experience in the administration of the benefit programs now
recommended, administrative problems under disability insurance should
be more readily met.

VIII. In order to compensate in part for the additional cost of the
additional benefits herein recommended, the benefits payable to individuals
as single annuitants after the plan has been in operation a number of
years should be reduced below those now incorporated in Title II. If the
national income should increase in future years, these reductions may
not be necessary.

In order to provide more adequate basic protection to the wage earners
of the country and at the same time fit the pattern of benefits to the
financial cloth, it is believed that the formula used in the computation
of old-age benefits should be revised in such a manner as to reduce the
eventual rates of benefit payable to individuals as single annuitants.
The Council is convinced of the necessity of broadening the scope of insurance
protection to include allowances for aged wives and benefits for aged
widows and surviving dependent children. It is of the conclusion that
the use of a part of the funds otherwise allocated to the payment of relatively
high benefits to single individuals in future years to permit the immediate
broadening of the protection afforded by the system is both socially justifiable
and financially necessary. The single individual will not be deprived
of adequate basic protection. Differentials in terms of past wages and
employment will remain. It would not be necessary for the single individual
to receive less in protection than thevalue of his direct
contributions with interest. Meanwhile through life, the single person
will have received directly or potentially the advantages of the protection
of the family unit.

Certainty is more valuable than promises. Only by such readjustment of
benefit schedules does the expansion of the scope of the insurance program
seem financially feasible.

IX. The death benefit payable on account of coverage under the
system should be strictly limited in amount and payable on the death of
any eligible individual.

With the introduction of a systematic and adequate plan of survivors'
protection under the old-age insurance program, all justification of the
large lump-sum death benefits now possible under the existing provisions
of Title II disappears. The present lump-sum payments have been considered
in the nature of rebates of contributions on a "savings-bank"
basis and are in no way related inamount to the needs
of a surviving family. At the same time the repayment of 3.5 per cent
of covered wages to the estates of all deceased persons, regardless of
the family situation, would consume a large amount of funds in the years
to come. The Council, therefore, recommends the substitution of a strictly
limited death benefit such as three months' average wages but not in excess
of $200 and payable in all cases where the insured individual is eligible.
On account of the diminishing number of casesaffected
as the program matures, it is recommended that no payment be made upon
the death of an individual who is not eligible.

X. The payment of old-age benefits should be begun on January
1,1940.

Since it is convinced of the importance of enhancing the effectiveness
and adequacy of the contributory system of old age protection in this
country, the Council recommends that benefits under the broadened program
be begun on January 1, 1940. It is believed that such an advancement of
the date of beginning benefits is not only financially and administratively
feasible but of marked social advantage in enhancing public understanding
of the method of contributory social insurance. Where existing needs can
be met on an insurance basis, there seems little justification for unnecessary
delay. Rather it is highly important that experience in the payment of
benefits be obtained as soon as feasible in order to provide more definite
experience for planning the financial program of the system. Many of the
details of administering benefits can only be tested in operation. With
marked progress already made in the administration of the program, the
expansion of the existing benefit payment facilities of the Board could
be readily accomplished in the course of the year 1939.

B. Recommendations on coverage

The Council wishes to repeat the recommendations affecting coverage under
the system adopted at its meeting in December, 1937, and submitted to
the Special Senate Committee and theSocial Security
Board at that time. These recommendations approved proposals developed
by the Social Security Board for the amendment of Titles II and VIII in
the following particulars:

1. An amendment which would permit an individual to qualify for
monthly benefits and to secure a larger monthly benefit because of employment
after age 65.

2. An amendment which would exclude from the definition of wages
certaintypes of payments made by an employer to or on
behalf of an employee under plans for providing for retirement or disability
benefits.

3. The coverage of seaman under the program.

4. The coverage of employees of national banks, and of state
banks which are members of the Federal Reserve System and of certain other
Federal and state instrumentalities.

5. An amendment defining coverage of services under the Act depending
on whether the excepted or included services predominate.

In addition, theCouncil makes the following recommendations
at this time:

I. The employees of private non-profit religious, charitable,
and educational institutions now excluded from coverage under Titles II
and VIII should immediately be brought into coverage under the same provisions
of these Titles as affect other covered groups.

The Council believes that there is no justification in social policy
for the exclusion of the employees of such organizations from the protection
afforded by the insurance program here recommended. Further, no special
administrative difficulties exist in the coverage of the employees of
such organizations under the system.

II. The coverage of farm employees and domestic employees under Titles
II and VIII is socially desirable and should take effect, if administratively
possible, by January 1,1940.

Farm and domestic employees are, in general, among those wage earners
most in need of protection against dependent old age and premature death.
Low wages and intermittent employment frequently combine to make individual
savings difficult. Their exclusion from the existing legislation was based
to a considerable extent on grounds of administrative difficulties foreseen
with respect to wage reporting and tax collections. Recent studies indicate
that the additional cost of extending the coverage of the system to these
classes of workers will be considerably less than originally estimated
since a large number of such workers are already coming under the system
through employment in covered occupations on a seasonal or part time basis.
Intermittent coverage of this character is not only unsatisfactory in
the benefits afforded but is a factor of uncertainty in financing the
program. These groups could probably be covered by means of some form
of stamp-book system applied to a limited number of broad wage classifications.

III. The old-age insurance program should be extended as soon
as feasible to include additional groups not included in the previous
recommendations of the Council and studies should be made of the administrative,
legal, and financial problems involved in the coverage of self-employed
persons and governmental employees.

Consistent with its acceptance of the contributory insurance method as
socially necessary and desirable, the Council recommends the extension
of the coverage of this method to the largest possible proportion of our
gainfully employed population. An important group outside the existing
program are those persons working on their own account such as business
and professional men, farmers, and mechanics. Not only would the inclusion
of this group be socially desirable, but it would also be a marked advantage
in planning the financial program of the system. At present, the shift
in and out of insurance coverage among this group of individuals is an
added factor of uncertainty.

Despite the reasons in its favor, extension of coverage to the self-employed
cannot be recommended at this time. The Council finds that the administrative
problems of obtaining reports of earnings and of collecting contributions
from persons without an employer, together with the problems of financing
the benefits to be paid such persons are extremely difficult. The Council
believes that attempts to find a solution should be made, and urges that
studies directed toward this end be continued.

C. Recommendations on finance

The Council is convinced that the problem of financing the amendedprogram of old-age and survivors' insurance here proposed must
be approached as a part of the general fiscal problem of the government
in providing for a continuing social service mechanism. In planning financial
policy, conservatism is a necessity but at the same time flexibility is
vital. In a continuing social insurance program, the cost of future benefits
can only be estimated. The sources of future income can likewise only
be estimated. Frequent revaluations of future costs and future income
are essentialto the safe planning of the system.

In its recommendations, the Council has sought to attack the present
problem of continuing old-age and survivors' protection, doing the most
possible to solve what can be solved now, avoiding, however, impossible
or unreasonable commitments for future generations. As has been stated,
the Council has had before it, at its request, a series of carefully developed
proposals, accompanying financial and actuarial studies, and administrative
provisions in outline form. On the basis of such studies the Council believes
that the ultimate annual cost of the revised program here proposed would
not exceed that involved in Title II of the existing Act although the
volume of benefit payments would be increased in the earlier years.

Much of the present controversy in regard to the financing of the old-age
insurance program has been concerned with long-run future policy. Experience
developing since the initiation of the program and further studies of
probable future trends have already shed much new light on the problem.
The revision of the structure of benefits alongthe lines
here recommended will aid materially in resolving the problem. After thorough
canvassing of this aspect of the insurance program, the Council makes
the following recommendations.

I. Since the nation as a whole, independent ofthe beneficiaries
of the system, will derive a benefit from the old-age security program,
it is appropriate that there be Federal financial participation in the
old-age insurance system by mean of revenues derives from sources other
than payroll taxes.

Dependent old age has become a national problem. A steadily rising proportion
of aged, technological change, mobility, and urban life have combined
to create a condition which cannot be met effectively by state governments
alone. The Council has indicated its conviction of the importance of an
adequate contributory insurance program in the prevention of the growth
of dependency in a democratic society. Since the nation as a whole will
materially and socially benefit by such a program, it is highly appropriate
that the Federal government should participate in the financing of the
system. With the broadening of the scope of the protection afforded, governmental
participation in meeting the costs of the program is all the more justified
since the existing costs of relief and old-age assistance will be materially
affected.

Governmental participation in financing of a social insurance program
has long been accepted as sound public policy in other countries. Definite
limits exist in the proper use of payroll taxes. An analysis of the incidence
of such taxes leads to the conviction that they should be supplemented
by the general tax program. The prevention of dependency is a community
gain in more than social terms.

II.The principle of distributing the eventual
cost of the old-age insurance system by means of approximately equal contributions
by employers, employees, and the government is sound and should be definitely
set forth in the law when tax provisions are amended.

The Council believes that this recommendation is a logical implementation
of the principle of governmental financial participation.

III. The introduction of a definite program of Federal financial
participation in the system will affect the consideration of the future
rates of taxes on employers and employees and their relation to futurebenefit payments.

Future taxes under the program must be determined in relation to the
future volume of benefits as knowledge becomes more definite. The introduction
of Federal financial participation will permit redetermination of tax
rates and intervals between adjustments of tax rates in relation to benefit
costs, as then estimated, if such redetermination is deemed appropriate.
Such adjustments may, under these conditions, be so determined as to affect
the amount remaining on balance in the old-age insurance fund without
the creation of serious financial problems as the system matures. The
Council believes that with Federal financial participation, problems of
financial policy can be far more readily resolved.

IV. The financial program of the system should embody provision
for a reasonable contingency fund to insure the ready payment of benefits
at all times and to avoid abrupt changes in tax and contribution rates.

The Council is of the conclusion that, in the financing of the insurance
program, it is desirable to make provision for a contingency fund to insure
ready payment of benefits at all stages of the business cycle and under
varying conditions resulting from fluctuations in such factors as the
average age of retirement, the total coverage under the program, and average
wage rates. It is desirable that the payment of benefits should not be
dependent upon quick Congressional action in levying emergency taxes to
meet deficits or in sudden raising of contribution rates when disbursements
exceed current tax collections or normal appropriations to the system.

With the changes in the benefit structure here recommended and with the
introduction of a definite program of governmental contributions to the
system, the Council believes that the size of the old-age insurance fund
will be kept within much lower limits than are involved in the present
Act. Under social insurance programs it is not necessary to maintain a
full invested reserve such as is required in private insurance, provided
definite provision is made for governmental support of the system.
The only invested fund then necessary would be a reasonable contingency
fund as outlined above. The financial program inherent in the present
Act offers one means of meeting the future costs of an old-age insurance
program. If the method of accumulating a relatively large reserve is eliminated,
there must be, instead, the definite assurance that the program will be
financed not by payroll taxes alone but, in addition, by governmental
contributions from other sources. Without interest returns on a relatively
large fund, payroll taxes alone would prove insufficient to meet the current
disbursements necessary as the system matures. For this reason, the Council
insists that the principle of adequate governmental contributions should
be definitely established in the law when tax provisions are revised,
if the reserve policy under the old-age insurance program is changed.

V. The planning of the old-age insurance program must take full
account of the fact that, while disbursements for benefits are relatively
small in the early years of the program, far larger total disbursements
are inevitable in the future. No benefits should be promised or implied
which cannot be safely financed not only in the early years of the program
but when workers now young will be old.

VI. Sound presentation of the government's financial position
require full recognition of the obligations implied in the entire old
age security program and treasury reports should annually estimate the
load of future benefits and the probable product of the associated tax
program.

The Council wishes to reiterate the necessity of taking full account
of the greatly increasing costs of the old age insurance program in future
years. The Council has kept this fact constantly in mind in its study
of recommended revisions. It is of the belief that we should not commit
future generations to a burden larger than we would want to bear ourselves.
It is therefore important that Congress be kept fully informed of the
obligations implied in the entire old age security program in the years
to come under both the assistance and the contributory insurance provisions
of the Social Security Act.

VII. The receipts of the taxes levied in Title VIII of the law,
less the costs of collection, should through permanent appropriation be
credited automatically to an old-age insurance fund and not to the general
fund for later appropriation to the account, in whole or in part, as Congress
may see fit. It si believed that such an arrangement will be constitutional.

VIII. The old-age insurance fund should specifically be made
a trust fund, with designated trustees acting on the behalf of the prospective
beneficiaries of the program. The trust fund should be dedicated exclusively
to the payment of the benefits provided under the program and, in limited
part, to the costs necessary to the administration of the program.

At the time the Social Security Act was drafted it was deemed necessary
for constitutional reasons to separate legally the taxation and benefit
features of the program. It is believed that in the light of subsequent
court decisions such legal separation is no longer necessary. Since the
taxes levied are essentially contributions intended to finance the benefit
program, it is not only logical but expedient to provide for automatic
crediting of tax proceeds to the old age insurance fund. It is believed
by the Council that such a procedure would enhance public understanding
of the contributory insurance system. Since the tax proceeds thus credited
are intended for payment of benefits, it is recommended that they be deposited
in a trust fund under the control of designated trustees in accordance
with appropriate legal provisions. The trust fund should be dedicated
to the payment of benefits and, to a restricted amount, to the costs necessary
to the administration of the program. It is recommended that these funds
should continue to be invested in securities of the Federal government
as at present.

In recommending these technical changes in the method of handling the
contributions under the program, the Council wishes to record again its
unanimous conclusion that the provisions of the existing law have been
strictly respected by Congress and the Treasury Department. It is believed,
however, that the technical improvements here recommended will simplify
and strengthen the financial provisions of the program.

With these and many other variable elements now present in any estimate
of the future costs of a revised program under Title II, the majority
of the Council is not ready to recommend any change in the tax schedule
under Title VIII of the Act at this time. It does not feel that it could
determine intelligently or with proper caution any precise adjustment
of rates. Nor is immediate change considered necessary since in any case
the amount accumulated in the old-age insurance fund for some years will
not exceed that deemed appropriate for the contingency fund previously
recommended. In view of the probable increase in the immediate cash outlay
to begin in 1940 which the Council's recommendations of benefits will
entail, it is conservative policy to continue the taxes now provided in
thepresent Act. It seems the part of wisdom to make
changes, as warranted, on the basis of more certain knowledge. {1}

{1} Several members of the Council
feel that the increase of 50 per cent in the tax rate from 2 per cent
to 3 per cent now provided by the law to be made in 1940 should be
reconsidered. Unless the cost of the benefits payable in 1940 and
1941 shall exceed current income from the present 2 per cent payroll
tax, and in view of the probable size of the contingency fund on January
1,1940, they feel that the increase in the tax rate should not take
place before the study herein recommended to be made in 1941 shall
have been completed. They believe that under the present conditions
it would be better policy to allow the sum involved in the increase
in the tax rate to remain in the hands of employees and employers
than to use it to increase the contingency fund.

X. The problem of the timing of the contributions by the government,
taking into account the changing balance between payroll tax income and
benefit disbursements, is of such importance as to require thorough study
as information is available.

The timing of the governmental contributions here proposed is particularly
a question requiring further study on the basis of better knowledge.

XI. Following the accumulation of such information, this problem
should be restudied for report not later than January 1, 1942, as to the
proper planning of the program of payroll taxes and governmental contributions
to the old-age insurance system thereafter, since by that time experience
on the basis of five years of tax collections and two years of benefit
payments (provided the present Act is amended to that effect) will be
available. Similar studies should be made at regular intervals following
1942.

After thorough canvassing of the problem, the Council is of the conclusion
that by the close of 1941, sufficiently comprehensive knowledge will be
available for definitive recommendations on changes in the tax program,
if then deemed appropriate, and for definitive recommendations as to the
timingof governmental contributions toward the financing
of the insurance system. By that time approximately five years of experience
in tax collection under varying conditions will be available. Even more
important, approximately twoyears of benefit experience under
a revised program will have developed, if suggested revisions are made.
Further change in the tax rates under the existing schedules will not
take place until January 1, 1943.

At that time, the determination of the long-run philosophy as to the
financing of the program will come to have significance in terms of tax
rates. Discussion of such philosophy, while of great concern to all far-sighted
students of fiscal policy, does not warrant departure from the recommendations
on financial policy here presented.

The Council has deemed it a privilege to cooperate in the study of the
old age security program carried on by the Senate Special Committee and
the Social Security Board and hopes that its findings will be of service
to the bodies which appointed it. While anxious to be of service as individuals,
we assume that with the presentation of this report the task for which
the Council was appointed has been fulfilled.

On April 29, 1938, the Council unanimously approved the following statement
concermng the financing of the old-age insurance system:

"The Advisory Council on Social Security has been giving much attention
to the problem of financing the old age insurance system. The Council
recognizes that there are other ways of financing the old-age insurance
system which upon further study may prove to have greater advantages than
the present system. The entire subject, however, is so complex that the
Council is not yet prepared to express a final judgment as to the method
of financing which would be most desirable from a social and economic
standpoint.

"Upon one aspect of the general problem the Advisory Council deems
it advisable to make a public statement at this time to allay unwarranted
fears. This relates to the method of handling the funds collected for
old-age insurance purposes.

"In accordance with the statutes, the taxes collected from employers
and employees under Title VIII of the Social Security Act are paid into
the general fund of the Treasury. While not expressly provided by law,
it was understood at the time of the enactment of the Social Security
Act that amounts equivalent to the entire proceeds of these taxes, less
costs of administration, shall be appropriated annually by Congress to
the old age reserve account. Congress has not only done so, but to date
has appropriated somewhat more to the old-age reserve account than has
been collected from the taxes levied in Title VIII of the Social Security
Act. Thus, up to the end of March, 1938, $636,100,000 had been invested
to the credit of the old-age reserve account, and $57,447,532 had been
collected from the taxes for old-age insurance purposes.

"A proportionate part of the moneys appropriated by Congress to
the old-age reserve account has been turned over periodically to this
account and has been immediately invested in special securities of the
United States Government bearing 3 per centinterest.

"The special securities issued to the old-age reserve accountare general obligations of the United States Government, which
differ from other securities of the Government only in the higher rate
of interest they bear and in the fact that they are not sold in the open
market. The issuance of such special securities is not only expressly
authorized by law, but is required by the provision of the Social Security
Act that the old-age reserve funds are to be invested so as to yield an
interest return of 3 per cent.

"The United States Treasury uses the moneys realized from the issuance
of these special securities by the old-age reserve account in the same
manner as it does moneys realized from the sale of other Government securities.
As long as the budget is not balanced, the net result is to reduce the
amounts which the Government has to borrow from banks, insurance companies
and other private parties. When the budget is balanced, these moneys will
be available for the reduction of the national debt held by the public.
The members of the Advisory Council are in agreement that the fulfillment
of the promises made to the wage earners included in the old age insurance
system depends upon, more than anything else, the financial integrity
of the Government. The members of the Council, regardless of differing
views on other aspects of the financing of old-age insurance, are of the
opinion that the present provisions regarding the investment of the moneys
in the old-age reserve account do not involve any misuse of these moneys
or endanger the safety of these funds."

The Social Security Board's Comments & Recommendations

The Advisory Council of 1938 recommended a fundamental shift in the Social
Security program, away from a defined benefit retirement plan for individual
workers, to a family benefit plan, with dependents and survivors benefits.
The Council's Report went to the Social Security
Board and to the Senate Finance Committee. The Social Security Board,
in turn, wrote its own report on the Council's report, differing in a
few important points, and this second report was transmitted to the President
along with the Council's Report.

The following is the text of the Social Security Board's Report to the
President, transmitting the Board's recommendations for legislative action.
These recommendations differ in many respects from the Council's Report,
although the key recommendation--to transform Social Security by adding
dependents and survivors benefits--is the same in both reports.

PROPOSED CHANGES IN
THE SOCIAL SECURITY ACT

A Report of the Social
Security Board to
the President and to the Congress of the United States

LETTER OF TRANSMITTAL

WASHINGTON, D. C.,
December 30, 1938.

The PRESIDENTThe White House.

DEAR MR. PRESIDENT: The Social Security Board has regarded as one
of its most important responsibilities under the Social Security
Act that imposed by the section of the law which charges the Board
with "the duty of studying and making recommendations as to
the most effective methods of providing economic security through
social insurance, and as to legislation and matters of administrative
policy concerning old-age pensions, unemployment compensation, accident
compensation, and related subjects."

In accordance with this congressional mandate and specific instructions
received from you, the Board, since its creation in August 1935,
has continuously appraised the operation of those provisions of
the act for which it has administrative responsibility. In addition,
the Board has carried on extensive studies as to effective methods
of providing greater social security for the American people.

The Social Security Board's report, based on these studies and on
practical experience in social security administration during the
past 3 years, is submitted herewith for your consideration and that
of the Congress.

The Board has not undertaken to include in this report the extensive
data on which its recommendations are based. However, the Board
is prepared to furnish such data and technical assistance as may
be desired in connection with any of these recommendations which
the Congress may wish to consider.

Respectfully submitted.

ARTHUR J. ALTMEYER, Chairman.

REPORT

Through the Social Security Act the people of the United States have
established their first Nation-wide and organized system of protection
against prevailing economic hazards. To accomplish this purpose, both
the Federal Government and the States have cooperated in these provisions
for social security. It has been possible, therefore, to attack Nation-wide
problems on a Nation-wide front, and, at the same time, to keep the program
practical, flexible, and close to the people.

Possible ways and means of improving and extending the present provisions
of the Social Security Act naturally become more apparent as administrative
experience increases, as more data become available, and as a better understanding
of actual needs develops. Though the Board recognizes that such growth
is a continuing essential, it believes that the general approach to social
security embodied in the existing act is fundamentally sound.

Through the Social Security Act the people of this country have attacked
the problem of insecurity upon two fronts: The act undertakes to provide
some measure of protection against present needs arising out of past neglect,
and it establishes at the present time basic protection against economic
hazards which would otherwise cause future insecurity. To accomplish these
purposes the act sets up, in the main, a system of Federal-State cooperation
whereby financial resources of the Federal Government are made available
to the States to enable them to safeguard their citizens. The only part
of the act wholly administered by the Federal Government is the old-age
insurance system. Since such a system necessarily operates on a long-term
basis, movement of population among the States precludes setting it up
on State-by-State basis.

The changes in the Social Security Act recommended by the Board are designed
to promote the objectives of the present law, as regards all the programs
under the Board's direction--old-age insurance, unemployment compensation,
and public assistance. In addition, the Board makes certain recommendations
with regard to general administration and suggests certain considerations
relating to health protection. It is the judgment of the Board that these
recommended changes represent practicable next steps toward the goalof adequate security for the American people by liberalizing
the benefits payable under the act, by extending its protection to a much
larger proportion of our people, and by greatly facilitating administration.

Federal Old-Age
Insurance

Although the Federal old-age insurance system is the largest ever put
into operation, it has proved to be sound from both the administrative
and financial standpoint. In considering the development of this plan,
it should be borne in mind that it is separate and distinct from the Federal-State
program of old-age assistance. Under Federal old-age insurance, benefits
are payable as a matter of right irrespective of individual need, and
in relation to past earnings. Under Federal-State old-age assistance,
payments are made only on the basis of individual need as determined by
the State.

Our present system of old-age security thus embodies two principles:
the insurance program related to the individual's past earnings and the
assistance program related to his present need. The Social Security Board
is convinced that a system of old-age security which attempted to operate
on any other principles would be bound to lead to disaster both for the
beneficiaries and for the general taxpayer.

The basic problem of old-age insurance is to make the system more immediately
and fully operative without destroying the reasonable relationship which
must exist in such a program between benefits payable and past earnings.
Such a relationship must exist under any system of retirement insurance,
whether social insurance or anindustrial pension plan, unless
the term "insurance" is to lose all its meaning. For the protection
of future beneficiaries and future taxpayers it is essential that this
reasonable relationship be maintained; just as in the case of old-age
assistance it is necessary to maintain a reasonable relationship between
assistance granted and the needs of the individual.

The present old-age insurance system, while maintaining a reasonable
relationship between past earnings and future benefits, provides proportionately
greater protection for the low-wage earner and the short-time wage earner
than for those more favorably situated. In other words, itrecognizes
presumptive need as an essential consideration in any socially
adequate old-age insurance system. But the presumptive need toward which
social insurance is directed must be distinguished from the specific need,
as established by investigation, which public assistance is designed to
meet. To allow for presumptive need, the old-age insurance system gives
much greaterweight to the first $3,000 of accumulated
earnings than to subsequent earnings. It is thus possible for a person
retiring in the early years of the system, or for a low-wage earner retiring
at any time, to receive very liberal benefits in proportion to his past
earnings.

But every worker, regardless of his level of earnings or of the length
of time during which he has contributed, will receive more by way of protection
than he could have purchased elsewhere at a cost equal to his own contributions.
In other words, the system recognizes the principle of individual equity,
as well as the principle of social adequacy. It has been possible to incorporate
inthe system both these aspects of security by utilizing a larger
proportion of employers' contributions to pay benefits to those retiring
in the early years, and to low-wage earners. A similar procedure is also
followed in private pension plans. Such plans recognize that the employer
must contribute more liberally in behalf of older workers if they are
to have sufficient income to retire.

Benefits

Starting Monthly Benefits in 1940--
The Board believes that the payment of monthly benefits should commence
in 1940 instead of on January l, 1942, as scheduled in the present law.
This will be practicable, in the opinion of the Board, since by 1940 a
considerable body of administrative experience will have been accumulated,
and wage records will have been built up for a period of 3 years.

Because of its nature as an insurance program, the Social Security
Board does not believe that it is possible to bring under this system
all persons who have already retired from gainful employment. Even though
it were considered reasonable to pay benefits regardless of the fact that
no past contributions had been made either by these individuals or by
their employers, it would be impossible to obtain adequate wagerecords upon which to compute benefits.

Increasing Benefits Payable in Early Years--
The Board also believes that the monthly benefits payable to those retiring
in the early years canbe increased without increasing
the eventual cost of the program.

The cost of any system of benefits will mount rapidly with the passage
of time as a larger proportion of the population reaches retirement age.
Consequently, a scale of benefits, the cost of which would be altogether
reasonable now, might be unduly burdensome at the end of a generation.
Therefore, in making increases in benefits, particularly in the early
years of a system, it is essential to keep the ultimate financial cost
in mind. It is impossible under any social insurance system to provide
ideal security for every individual. The practical objective is to pay
benefits that provide a minimum degree of social security--as a basis
upon which the worker, through his own efforts, will have a better chance
to provide adequately for his individual security.

In order to increase benefits for those retiring in the early years,
the Board recommends two measures: first, supplementary benefits for aged
wives, and second, the use of "average wages" instead of total
accumulated wages for the computation of benefits.

Supplementary Benefits for Aged Wives--
The Board suggests that a supplementary benefit be paid for the aged dependent
wife of the retired worker which would be related to his old-age benefit.
Such a plan would take account of greater presumptive need of the married
couple without requiring investigation of individual need. An aged wife
would of course be entitled to benefits based upon her own past earnings
in lieu of the supplement, if her own benefits were greater. Since in
the course of time many women will have developed substantial benefit
rights based upon their own past earnings, the cost of providing the supplement
for dependent wives would gradually decline, and eventually the additional
cost would be reduced to a relatively small amount. In order thatgreater social adequacy may not be achieved at the expense of
individual equity, the Board recommends that the benefits payable to unmarried
persons continue to be at least as much as they could purchase from a
commercial insurance company with their own contributions.

Utilizing "Average Wages" as Benefit Base--The Board recommends that benefits be calculated upon the basis of
average wages, rather than, asat present, upon total
accumulated wages.

This change would make it possible to increase early benefits and to
relate benefits more closely to the previous normal wage income of the
individual. It would also eliminate, as the years go by, the large bonus
which present provisions would afford those who have had only a brief
period of participation prior to the date of retirement. Under the existing
law the large credit for the first $3,000 of accumulated earnings remains
in effect regardless of whether a worker retires in the early years of
the system or later. This large credit is justified in the early years,
since workers and their employers have had an opportunity to make contributions
for only a short period of coverage under the system. But it is advisable
to safeguard the system against disproportionately large withdrawals in
the future in behalf of those who have paid taxes only a short time.

While the Board believes that benefits should be related to the average
wage, it recognizes that benefits should also be related to the number
of years the individual has been in covered employment and has made contributions.
The Board therefore recommends that an insured individual, upon retirement,
receive a basic benefit related to his average wages; and that, for every
year he has earned more than some small specified amount of wages in covered
employment, his basic monthly benefit be increased by a specified percentage.
Conversely it recommends that for every year a person does not earn this
specified amount of wages, the basic monthly benefit be reduced by the
same percentage.

The Board is of the opinion that a percentage decrease for each year
not covered is a more equitable approach than that found in most foreign
old-age insurance systems which usually require that a person be in covered
employment during a specified number of years immediately preceding the
date of retirement. As a result, an individual who had been in covered
employment a considerable proportion of his working life but not during
the last few years before retirement would be ineligible for monthly benefits.
Such a provision would, in the Board's opinion, work undue hardship on
those who had left covered employment during their later years and would
offer undue advantages to those who entered covered employment only during
their last few workingyears. The system which the Boardrecommends represents a more flexible and equitable arrangement.
It not only protects individuals who have been in covered employment during
a considerable portion of their working life, but also safeguards the
system as it matures against disproportionate payments to those in covered
employment for only a short time.

Benefits for Widows and Orphans--The Board is of the opinion that old-age insurance should be expanded
to include survivors' insurance. The law now provides for single lump-sum
cash death payments equal to 3.5 percent of the worker's total recorded
wages provided he has not during his lifetime drawn benefits equal to
this amount. Under a social insurance system the primary purpose should
be to pay benefits in accordance with the presumptive needs of the beneficiaries,
rather than to make payments to the estate of a deceased employee regardless
of whether or not he leaves dependents. The payment of monthly benefits
to widows and orphans, who are the two chief classes of dependent survivors,
would furnish much more significant protection than does the payment of
lump-sum benefits. Such monthly benefits could be provided and still kept
within the eventual costs of the present system. There is ample precedent
for such provision, since 15 out of 22 foreign old-age insurance systems
make provision for survivors' benefits.

The Board is of the opinion that aged widows and younger widows with
dependent children should receive benefits, and that benefits should be
paid on behalf of children at least until they reach 16 years of age,
and until 18 while they are regularly attending school.

Some measure of the need for this protection as it affects children is
indicated by experience under the present Federal-State program of aid
to dependent children. In 43 percent of these cases the children have
become dependent because of the father's death and in an additional 25
percent of the cases, because of the father's disability.

The Board has given much consideration to the feasibility and desirability
of providing benefits for widows under 65 years of age who have no young
children in their care. The Board believes that only a temporary monthly
benefit, covering the period immediately following the husband's death,
should be paid in such cases. However, the Board does recommend that all
widows of persons who would have been qualified for old-age benefits,
if they had lived to age 65, be entitled to a deferred monthly benefit
payable at age 65. Such benefits should bear some reasonable relationship
to that which the deceased husband would have received.

Normally, young widows without children can be expected to enter gainful
employment, but middle-aged widows frequently find it more difficult to
become self-supporting. On the other hand, they are likely to have more
savings than younger widows and many of them have children who are grown
and able to help them until they reach 65 years of age, when they would
be entitled to a widow's benefit under the plan proposed. Though their
problems are fully recognized, provision for commencing benefits to widows
under 65 with no children would present certain serious anomalies. Any
age selected for benefits to begin would appear arbitrary, excluding some
widows just below that age. Moreover, the question would arise as to discrimination
against unmarried women, who would not receive benefits until they reached
65. Yet if the retirement age for women generally were lowered, the effect
would be to discriminate against men and at the same time substantially
to increase the cost.

Disability Insurance--The Board has given much thought to the question of whether the present
old-age insurance system should be expanded to include provision for benefits
to workers who become permanently totally disabled, before reaching age
65, and to their dependents.

With the single exception of Spain, every other country which has a system
of old-age insurance has made provision for permanent disability. One
of these countries, Great Britain, includes this provision in its health-insurance
system; others relate it directly to old-age insurance.

The Board recognizes that the administrative problems involved are difficult,
although it does not believe them insuperable. It also recognizes that
provision for permanent total disability would increase the cost of the
system both now and in the future. For these reasons it is not making
any positive recommendation on this matter at this time. It should, however,
be pointed out that the extent to which costs would increase would depend
upon the definition of disability which could be made effective. If a
fairly strict definition were adopted and maintained,the Board
believes that the additional costs could be kept within reasonable limits.
Later, as experience developed, the definition could be made more liberal
if this appeared socially desirable. In connection with any permanent
total disability program, adequate provision should be made for hospitalization
and other institutional care, and for vocational rehabilitation.

Coverage

Extending the Coverage of the System--The Social Security Board is of the opinion that it is sound social
policy to extend old-age insurance to as many of the Nation's workers
as possible. It believes that it is administratively feasible to provide
this protection for large numbers of people who are not yet covered.

Even with its present limited coverage--estimated to include at any one
time only 50 percent of the Nation's gainfully occupied population-- at
least some small measure of protection is already being furnished by the
old-age insurance program to two-thirds of those gainfully occupied. This
is due to the fact that a great many persons, usually in excluded occupations,
work in covered employment from time to time. It is estimated that, even
without any change in the present coverage, 75 or 80 percent of the gainfully
occupied persons in this country would eventually have some protection.
However, since the adequacy of this protection depends to a considerable
extent upon the length of time the individual actually works in covered
employment, it is highly desirable that coverage be extended as rapidly
as administratively feasible. Extension of coverage would also be necessary
in order to protect the financial soundness of the system if the present
benefit provisions in the law granting such proportionately large benefits
to persons who have been in covered employment only a short period prior
to retirement are retained.

Agricultural labor--The Board believes that the "agricultural labor" limitation
on coverage should be modified. It is, of course, apparent that the problem
of covering the independent farmer cannot be finally solved, except as
part of a general program to cover the self-employed. It is also recognized
that the complete inclusion of employees engaged in agricultural labor
is fraught with great administrative difficulties. However, the Board
believes that the inclusion of large-scale farming operations, often of
a semi-industrial character, probably would reduce rather than in crease
administrative difficulties.

At present it is almost impossible to delimit the field of "agricultural
labor" with anything like the certainty required for administration
and for general understanding by employers and employees affected. The
extent of the exception is shadowy indeed where the producer also engages
in processing and marketing.

The Board recommends that the language of the present exception relating
to ''agricultural labor" be modified to make it certain that this
exception applies only to the services of a farmhand employed by a small
farmer to do the ordinary work connected with his farm. The Board further
recommends that, with a reasonable time allowed before the effective date,
the "agricultural labor" exception be eliminated entirely.

Domestic Service--The Board recommends that the exception of domestic service be eliminated,
with a reasonable time allowed before the effective date. It is believed
that the principal administrative difficulties with respect to domestic
service will be overcome, just as they will be in the case of agricultural
labor, when the individuals affected become generally informed as to the
benefits and obligations incident to coverage.

Maritime Employment--There is at present an exclusion of "service performed as an
officer or member of the crew of a vessel documented under the laws of
the United States or of any foreign country." The legislative history
indicates that this exclusion was made because of the administrative difficulties
of covering foreign crews of American vessels engaged in foreign trade.
The Board recommends that the present exception be redrawn so that exclusion
of employment on American vessels be limited to this type of situation.

Nonprofit Organizations--The Board recommends the inclusion of service performed for religious,
educational, charitable, and similar nonprofit organizations. The Board
foresees no serious administrative difficulties in such inclusion.

Services Performed for the Federal Government or Its Instrumentalities--The Board recommends the inclusion of service performed in the employ
of the United States or its instrumentalities. The Board anticipates no
administrative difficulties in such inclusion. However, in extending old-age
insurance to all employees of the Federal Government, it would be necessary
to give consideration to the effect on other retirement systems for Federal
employees, with a view either to excluding employees already covered by
these systems or to adapting these systems so that they would take account
of the basic protection afforded by the old-age insurance system. In any
event, the Board recommends an amendment to bring under coverage employees
of instrumentalities of the United States, except those which either are
wholly owned by the United States or are exempt from the taxes levied
under the Social Security Act by virtue of some other act of Congress.
The principal "Federal instrumentalities" which would thus be
brought into old-age insurance are national banks and State banks which
are members of the Federal Reserve System, and building and loan associations
which are members of the Federal Home Loan Bank System.

Services Performed for States and Their Instrumentalities--
A number of State and municipal officials have indicated a desire
for coverage of State and municipal employees. However, no method has
yet been devised which would overcome constitutional difficulties and
also protect the old-age insurance system against adverse selection. It
is hoped that further study will develop a method which will be constitutional
and which will prove mutually advantageous to the States, their employees,
and the old-age insurance system. The Board confines its recommendation
at this time to the suggestion that the present exclusion of the act be
modified so that it applies only to services performed in the employ of
a State or a political subdivision or instrumentalities wholly owned by
the State or whose functions are such as to raise constitutional barriers
to Federal taxation.

Allowing Benefit Credits for Wages Earned After 65--The Social Security Act as it now stands does not permit workers
to gain benefit credit for wages earned after age 65. The taxes paid by
employer and employee also stop when the wage earner reaches this age.
Lump-sum cash benefits are provided for workers who reach 65 years of
age without having worked enough to qualify for a monthly benefit. Such
workers, even though they continue in employment, cannot under the present
law qualify for annuities. The lump-sum payment is all that is available
to them. The Social Security Board recommends that such workers receive
credit for any time that they work after age 65 so that they may qualify
for monthly benefits upon retirement at a somewhat later date. This would
automatically eliminate the occasion for lump-sum payments at age 65,
and at the same time would provide a much greater degree of protection
for older workers.

Employer-Employee Relationship--Old-age insurance coverage is at present limited by the undefined
terms "employer" and "employee." The Board recommends
that this provision be expanded to the extent feasible to cover more of
the persons who furnish primarily personal service. The intention of such
an amendment would be to cover persons who are for all practical purposes
employees, but whose present legal status may not be that of an employee.
At present, for example, insurance, real estate, and traveling salesmen
are sometimes covered and sometimes not; the Board believes that all such
individuals should be covered.

Casual Labor--The Board believes it is necessary to retain the existing exclusion
of casual labor not in the course of the employer's trade or business,
because of the administrative difficulties which otherwise would be involved,
with no considerable compensating social advantages. It should be noted
that this exclusion is numerically small since labor so excluded must
be not only casual but also unrelated to the employer's business.

Self-Employment--
The Board has given considerable study to the possibility of including
self-employed persons under the old-age insurance system. However, the
Board is not prepared at this time to recommend what it considers a practicable
method for extending coverage to such persons.

Contracting Coverage to Prevent Collusion--Until a practicable means is found for including self-employed persons,
the Board recommends that the family employment exclusion, appearing in
title IX of the Social Security Act relating to unemployment compensation,
be incorporated in the old-age insurance provisions. The Board further
recommends that the act be amended so that old-age insurance benefits
will not be paid where there has been a contract of employment for the
purpose of securing benefits without the performance of bona fide service.

Financing

The Social Security Board is not making detailed recommendations relative
to the financing of the old-age insurance system since the Treasury Department
is charged with primary responsibility in this regard. However, the Board
believes it is essential that any method of financing that is proposed
should take into account all probable future disbursements so that the
interests of both the prospective beneficiaries and the general taxpayers
may be properly safeguarded.

When the system is fully matured, its eventual cost with thechanges here recommended--which the Board believes will furnish
far greater protection--would be somewhat less than the cost of the present
system. The cost of paying benefits in the early years would, however,
be greatly increased if the proposed changes were put into effect. If
permanent total disability insurance should also be included, the eventual
cost, when the system is fully matured, would be somewhat more than the
present system.

The existing law contemplates a fully financed system for all time to
come. That is to say, it requires that probable future liabilities be
taken into account from the very beginning and that a sufficient reserve
be set up so that the earnings on the reserve, plus current pay-roll tax
receipts, will be sufficient always to cover annual benefit disbursements.

As already stated, if the recommendations of the Board relating to benefits
are adopted, early payments under the system will increase substantially.
The tax provisions embodied in the present law would probably cover the
increased annual cost for the first 15 years. They would also probably
provide a small reserve, which would be invested and earn some interest.
But when future annual benefit disbursements exceeded annual tax collections
plus interest earnings, some other provision would have to be made for
the funds which, under the existing plan, would be secured from interest
on accumulated reserves. It would then be necessary to do one of two things:
increase the pay-roll tax, or provide for the deficiency out of other
general taxes.

The Board is of the opinion that it would be sound public policy to pay
part of the eventual cost of the benefits proposed out of taxes other
than pay-roll taxes, preferably taxes such as income and inheritance taxes
levied according to ability to pay.

The portion of the total costs to be met by taxesother
than pay-roll taxes should depend upon the proportion of the general population
covered by the insurance system. The wider the coverage, the more extensive
this contribution from other tax sources might properly be.

Although the Board believes that contributions to the old-age insurance
program should eventually be made out of Federal taxes other than those
on pay rolls, it does not believe that such taxes should be substituted
for any part of the pay-roll taxes, provided in the present act, or that
such other taxes should be used until annual benefit disbursements begin
to exceed annual pay-roll tax collections, plus the interest earned on
the small reserve which would be accumulated. The Federal Government is
already making an annual contribution out of general taxes of almost a
quarter of a billion dollars for old-age security, in the form of grants
to the States to help finance their old-age assistance programs. Substitution
of other taxes for any portion of the pay-roll taxes now provided would
increase the disparity between taxes paid and benefits payable in the
early years of the system. Those retiring in the early years in any event
will receive much greater benefits in proportion to taxes paid on their
behalf than those retiring in the later years. Furthermore, while the
exact future costs of benefits under the insurance system cannot be determined
with any degree of accuracy until more data areavailable
(especially those which will come with the actual payment of benefits
to large numbers of people), it is certain that the costs will be great
and it is important that Government finances should not suffer through
reduction in revenues from pay-roll taxes.

Administrative Changes

The Board recommends a number of changes to improve administration of
the present law:

1. Inclusion of a provision requiring employers at the time of wage payment
to furnish employees a statement, which they may retain, showing the amount
of taxes deducted from their wages under the old-age insurance system.

2. Exclusion of any nominal wages paid employees of all nonprofit organizations
exempted from the Federal income tax. Many nonprofit organizations, particularly
fraternal organizations with employees and officers drawing a nominal
wage, are now required to make reports and pay taxes for these employees,
although the amount of the taxes and prospective benefits involved is
negligible.

3. Exclusion from the definition of wages of all payments made by an
employer to or on behalf of an employee under a plan or system providing
for retirement benefits, dismissal wages, disability benefits and medical
and hospital expenses. The purpose of this proposal is to avoid discouraging
plans of the nature described.

4. Simplification of the present provisions with respect to lump-sum
payments on death (in case the substantive changes recommended by the
Board are not made).

5. Provision that applications for death benefits must be filed within
2 years after date of death.

6. Simplification of the procedure for payment toinfants
or other legally incompetent persons.

7. Provision making more equitable the recovery by the Federal Government
of incorrect payment to individuals.

8. Provision respecting the practice of attorneys and agents before the
Board.

9. Provision that findings of fact and decisions of the Board in the
allowance of claims shall be final and conclusive. Such a provision would
follow the precedent of the World War Veterans Act and of other legislation
with respect to agencies similar to the Board which handle a large number
of small claims.

10. Clarification of the law regarding services of an employee performing
both excluded and included employment.

Unemployment Compensation

The unemployment compensation and public assistance provisions of the
Social Security Act constitute the most comprehensive attempt yet made
to utilize a system of Federal-State cooperation for the solution of national
problems. To promote State action in unemployment compensation the Federal
law establishes a uniform tax payable by employers regardless of whether
the State in which they operate has an unemployment compensation law;
it then permits employers to offset their contributions under a State
unemployment compensation law up to 90 percent of the total Federal tax.
The act also provides that the Federal Government shall make grants to
the States to cover the entire necessary cost of proper administration
of their unemployment compensation laws.

The recommendations of the Social Security Board relative to unemployment
compensation deal with extension of coverage, improvement of Federal-State
relationships, and certain technical changes, rather than any fundamental
change in the present Federal-State pattern now set forth in the Federal
law. Though the adjustment of Federal-State relations is at best a difficult
and delicate task, particularly in the field of social legislation, experience
so far indicates a large measure of success. The present provisions of
the Federal law have proved completely effective in facilitating the enactment
of State unemployment compensation laws. These laws and the character
of their administration have on the whole been reasonably satisfactory.
The inevitable administrative difficulties involved in the inauguration
of any large-scale undertaking were accentuated by the fact that in 22
States benefits became payable in January 1938, at a time of unexpectedly
heavy unemployment. In spite of these difficulties, the 31 jurisdictions
that had begun paying benefits by the end of 1938 have paid out about
$400,000,000 in benefits to approximately 3.5 million unemployed workers.
The most pressing problem in unemployment compensation at the present
time is improvement andsimplification of the State laws
themselves and of their administration, on the basis of increasing experience.

Employers' Tax and Reporting Procedures
The Board is aware of the suggestion made at the time the Social Security
Act was under consideration, that the Federal Government should collect
the entire Federal tax and make grants-in-aid to the States, instead of
allowing an offset on the Federal tax. It was argued that such a method
would relieve employers of the necessity of making tax reports to both
the State and the Federal Government. It is true that this would be of
some advantage, particularly to employers operating in more than one State.
However, at present, the State unemployment compensation agencies need
detailed information concerning the past working history of persons claiming
benefits in order to determine the amount due them. If employers did not
report directly to the State agencies, it would either be necessary for
the Federal Government to furnish the State agencies the required information,
or it would be necessary for the States to develop benefit procedures
which would eliminate detailed reporting. Neither the Federal Government
nor the States have had sufficient experience to warrant an opinion as
to the feasibility of such a drastic change.

The Board, however, does recommend that the Federal unemployment compensation
tax provisions be combined with those for old-age insurance which relate
to employers. Such a combination would have the advantage of relieving
employers from making two separate Federal tax returns. This arrangement
would, of course, not affect the present offset provision or the present
use of the proceeds of the two separate taxes.

Extension of Coverage
Regardless of whether the two taxes are combined, the Board recommends
that the coverage of unemployment compensation be made similar to the
coverage already recommended for old-age insurance, with certain exceptions
to be discussed later. Even though the tax provisions were not combined,
there would be great advantages in making the provisions of the two programs
identical with respect to employers affected by both. Such a change would
make it possible to simplify employers' recordkeeping and reporting to
the Federal Government, as well as to the States, since the latter would
undoubtedly adjust their State laws accordingly.

The suggested combination of the unemployment compensation tax provisions
with the old-age insurance tax provisions or any broadening of Federal
unemployment compensation provisions (with the exception of maritime employment)
should not become effective before January 1, 1941, since it would be
necessary to give the States ample opportunity to amend their laws accordingly.
This would also give the State unemployment compensation agencies sufficient
time to perfect their administrative organization and procedures.

In unemployment compensation as in old-age insurance, the Board believes
that it is administratively feasible and in accordance with sound social
policy to include the employments not covered by present Federal provisions,
with the exceptions hereafter discussed.

Problems Relating to Agricultural Employment--The situation of agricultural employees is frequently different from
that in most other occupations. Farm employees often either own small
farms of their own, or live in homes provided by the employer with the
use of land and equipment to produce a part of their subsistence. While
it seems feasible to cover such persons in old-age insurance, in unemployment
compensation there are unusual problems. For example, in many cases it
would be extremely difficult to determine whether the individual should
be considered "unemployed," or whether he is normally working
for himself. While some foreign systems have been extended to cover agricultural
employees, it must be recognized that the agricultural wage-earning group
in this country is much less clearly defined. It therefore appears inadvisable
to recommend at this time the extension of unemployment insurance to cover
all agricultural employees. However, just as in the case of old-age insurance,
the Board recommends that the language of the present exception relating
to "agricultural labor" in any event should be modified to make
certain that this exception applies only to the services of a farm hand
employed by a small farmer to do the ordinary work connected with his
farm. The Board will continue to study the problems involved and will
make every effort to develop practical ways andmeans
of bringing about extension to agricultural employees.

Problems Relating to Domestic Service--In case of domestic service in a private home, the difficulties of
extending unemployment compensation are far less serious than in agriculture.
The fact of unemployment is much easier to determine. The chief problem
here relates to the determination and collection of contributions. The
Board believes domestic employees can and should be covered by the unemployment
insurance provisions of the act, provided sufficient time is allowed for
the States to perfect their administrative procedures.

Problems Relating to State and Federal Employment--Employment by a State government or its instrumentalities must continue
to be excluded from Federal unemployment compensation provisions for the
reasons cited in connection with old-age insurance. The Board does not
believe there would be any great advantage in including Federal employees
under the unemployment compensation provisions. Civil-service employees
are, for the most part, already protected against the hazard of unemployment,
and it would probably be more practical to provide for non-civil-service
employees through some form of dismissal wage rather than through establishing
a special Nation-wide unemployment compensation system.

However, the Board does believe that so-called instrumentalities of the
Federal Government which are not wholly owned by it--such as national
banks--should be brought into State unemployment compensation as well
as under old-age insurance.

Nonprofit Organizations--The Board recommends the inclusion of service performed in the employ
of nonprofit organizations. The Board anticipates no serious administrative
difficulties in such inclusion.

Family Employment--In order to avoid serious administrative difficulties in the payment
of unemployment compensation benefits, the Board believes that the exclusion
of family employment should be retained.

Including Employers of One or More Employees--The Board recommends that the present Federal restriction to employers
who have had 8 or more employees in 20 or more weeks during the year be
eliminated so that the unemployment compensation provisions would cover
all those having one or more employees, just as in the case of old-age
insurance. Twenty-four State unemployment compensation laws already cover
smaller employers than those included in the Federal act as it now stands;
of these, 10 cover employers of one or more.

Employer Employee Relationship--The Board recommends that the changes to broaden and clarify these
terms, already described in connection with old-age insurance, be also
incorporated in the Federal provisions for unemployment compensation.

General--
The Board recommends that the Federal pay-roll tax in connection with
unemployment compensation be limited to the first $3,000 of annual wages,
if that maximum is retained in the old-age insurance tax provisions. Though
the Board recognizes that such a limitation would reduce revenue somewhat,
it believes that this disadvantage would be counterbalanced by the advantages
to be derived from making the Federal tax provisions identical for both
programs.

If unemployment compensation coverage is extended to employers of one
or more, the Board believes it will be necessary to exclude--for the same
reason as in old-age insurance--casual labor not in the course of the
employer's trade or business.

Unemployment Compensation for Seamen--Under the Constitution it is impossible to confer upon the States
jurisdiction over maritime employment to the extent necessary to meet
the needs of unemployment compensation. Therefore, in order to afford
such protection to seamen it would be necessary to pass a Federal act.
The Board recommends that such an act be passed covering all maritime
employment which it is not possible or practicable to bring under State
laws, with the exceptions noted under old-age insurance.

State Personnel--Under the present Federal law, before a grantto
a State for unemployment compensation administration may be certified,
the Social Security Board must find that the State law includes provisions
for "such methods of administration (other than those relating to
selection, tenure of office, and compensation of personnel) as are found
by the Board to be reasonably calculated to insure full payment of unemployment
compensation when due." In another section, the Board is required,
in making such grants, to determine the amount "necessary for proper
administration" of the State law.

The Board believes that proper administration must necessarily include
adequate provision for the selection, tenure of office, and compensation
of personnel. Therefore it may be argued that a conflict exists in the
present Federal provisions. The Board believes this should be resolved
by repealing the parenthetical language quoted above.

In the opinion of the Board it is sound policy for the State unemployment
compensation agencies to have entire authority and responsibility for
the selection, tenure of office, and compensation of individual employees.
But this authority and responsibility should be exercised in accordance
with a systematic merit system for the establishment and maintenance of
desirable personnel standards. The Board therefore recommends that for
the parenthetical language already quoted, there be substituted language
requiring that methods of State administration shall include procedures
for the establishment and maintenance of personnel standards on a merit
basis.

Such merit systems should include, as does the Federal civil-service
law, prohibition against political solicitation and political activity,
since the salaries of State unemployment compensation personnel are paid
entirely out of Federal funds.

Thirty-nine State unemployment compensation agencies already operate
under a general State civil-service law or in accordance with a merit
system established for or by the agency itself. The effect of this suggested
amendment would simply be to make personnel practices already put into
operation by a large majority of States more general.

The Board believes that requiring the State agencies to establish a merit
system would place Federal-State relations on a more stable and automatic
basis. In actual experience the result of establishing an adequate State
personnel system has been to eliminate the necessity for detailed Federal
scrutiny of operation, and the possibility ofmisunderstanding
and conflict in Federal-State relations. The suggested requirement thus
constitutes not an encroachment of Federal authority in State operations,
but rather a protection to the States against undue interference with
their administrative functioning.

The establishment of a merit system also protects taxpayers and beneficiaries
within the State, inasmuch as it materially reduces the hazard that administration
will become so unsatisfactory that theState law can
no longer be certified by the Board as meeting the administrative standards
of the Federal act. Such inability to certify means that employers in
a State would be required to pay to the Federal Government 100 percent
instead of 10 percent of the Federal tax, in addition to paying their
full tax under the State unemployment compensation law. Up to the present
the Board has not found it necessary to withhold certification in the
case of unemployment compensation, although it has been necessary to take
such action regarding public assistance grants. Effective safeguards should
be set up, in order to eliminate the possibility that the derelictions
of their public servants may bring such a penalty upon innocent citizens
of a State.

Unification of Unemployment Compensation and Employment Service--
In order to promote effective administration, the Board recommends that
the administration of unemployment compensation and of the United States
Employment Service be unified in a single Federal bureau, in such a way
that the specialized functions of each are not only protected but strengthened.
In all other countries having unemployment compensation systems, a single
governmental agency administers both the placement function and the insurance
function. This has been found necessary because of the close relationship
essential to the proper carrying out of these two functions. In this country
each is under a separate Federal agency, although in all the States but
one a single State agency administers the unemployment compensation law
and operates the State employment service.

The Social Security Act provides that unemployment compensation may be
paid through public employment offices or such other agencies as the Social
Security Board may approve. The Board has fully recognized the desirability
of paying claims through public employment offices, in order to aid the
unemployed worker in finding new employment, and to reduce the amount
of unemployment compensation claims to a minimum. It has, therefore, not
approved of payment of unemployment compensation claims through any agencies
other than employment offices.

Recognizing the necessity for an efficient employment service as a part
of the proper administration of a State unemployment compensation law,
the Board has made grants to the States for the administration of their
employment services. The Board has realized that it would be uneconomical,
undesirable, and impracticable to have two employment services, one for
workers covered under the unemployment compensation laws and one for workers
not so covered. Therefore, it has encouraged the States to affiliate with
the United State Employment Service and to match the Federal funds available
in connection with that service. All the States have taken this action.
The Federal funds available to them from this source have been substantially
augmented by grants from the Social Security Board. Of the total funds
now being expended for the operation of the expanded Federal-State employment
service, approximately 80 percent is provided by grants from the Board,
10 percent by grants from the United States Employment Service, and 10
percent by the States themselves.

From the outset the Board has recognized the necessity for coordinating
and integrating its unemployment compensation functions with those of
the United States Employment Service, in order to avoid the dilemma in
which the State agencies would be placed if obliged to deal with two Federal
agencies having conflicting standards and policies. The Board, therefore,
negotiated an agreement with the Secretary of Labor whereby the United
States Employment Service and the Board's Bureau of Unemployment Compensation
would act as if they were a single agency. This joint agreement has promoted
a considerable degree of coordination and integration. But complete integration
is necessary in the interests of economy, efficiency, and good will. The
day-to-day activities of the local employment offices, through which unemployment
compensation claims are paid, are closely interrelated and vary in such
a way between unemployment compensation and placement work that it is
necessary for a considerable portion of the employees to be available
for transfer from one function to another as occasion requires. Only unified
supervision and direction can properly protect and integrate the various
functions that must be performed if unemployed workers and employers are
to be served adequately.

Other Administrative ChangesThe Board recommends a number of other changes designed to improve
the administration of the present program:

1. Increasing the authorization for the annual appropriation of Federal
funds to assist the States in the administration of their unemployment
compensation laws. The present maximum of $49,000,000 is clearly insufficient
to cover the necessary cost of proper administration. The Board recommends
that the maximum be raised to $80,000,000. The history of this legislation
indicates that Congress intended that the 10 percent net proceeds of the
Federal tax should cover the entire cost of administration. An authorization
of this increased amount would still be covered by the probable proceeds
of this tax.

2. Supplementary provisions authorizing the Social Security Board to
enforce requirements that expenditure by State officials of Federal funds
be in accordance with the purposes authorized by the act.

3. Changing the base of the pay-roll tax from "wages payable"
to "wages paid," thus making it the same as that for old-age
insurance taxes.

4. Permitting the employers to offset against their Federal tax, up to
the 90 percent maximum, all contributions made under State unemployment
compensation laws, regardless of whether or not the latter are made with
respect to employment as defined under the Federal law.

6. Exclusion from the definition of wages of all payments made by an
employer to or in behalf of an employee under any benefit plan or system,
as described in the identical recommendation made with regard to old-age
insurance.

7. Extending the time within which credit maybe claimed
under the Federal taxing provisions in cases where the employer has paid
his State tax on time, but has paid it to the wrong State.

8. Authorizing the States to make their unemployment compensation laws
applicable to persons employed upon land held by the Federal Government,
such as employees of hotels in national parks. Congress has already enacted
a statute giving the States authority to apply their workmen's compensation
laws to such employees.

9. Clarification of the language excluding State instrumentalities to
indicate that the exemption applies to any instrumentality wholly owned
by the State or political subdivision, as well as to those which would
be exempt under the Constitution.

10. Clarification of the law as regards services of an employee performing
both excluded and included employment. The same recommendation is made
in connection with old-age insurance.

11. Clarification of the provisions relating to so-called "merit
rating" or "experience rating" under State unemployment
compensation laws.

Public Assistance

The Social Security Act offers the States Federal aid in providing public
assistance for three groups of the needy--the aged, the blind, and dependent
children. The Nation-wide development of these programs since the passage
of the act leaves no question as to the effectiveness of this Federal
legislation in promoting more systematic, equitable, and humane assistance
to these needy men, women, and children.

As a result of the Federal grants-in-aid which the act makes available,
all the States and Territories and the District of Columbia have joined
in the Federal-State old-age assistance program. Forty States, the District
of Columbia, and Hawaii are taking part in the program for aid to dependent
children, and the same number in aid to the needy blind. By the close
of 1938 some 1,771,000 old people, 636,000 children, and 42,000 blind
were thus being aided from combined Federal and State funds. The total
amount of Federal and State aid given during the current fiscal year will
approximate half a billion dollars.

The Board recommends no fundamental change in Federal-State relations
as regards public assistance. It believes, however, that certain substantive
and procedural changes can be made which will greatly strengthen and improve
the protection now afforded.

Old-Age Assistance and Aid to the Blind--At the present time, in addition to reimbursing the States for 50
percent of their assistance payments to the needy aged and needy blind
(subject to a maximum of $30 a month for each person aided), the Federal
Government makes an additional grant of 5 percent which the State may
apply to administration. This flat 5 percent does not represent an adequate
Federal contribution for proper administration; and the Board, therefore,
recommends that the law be amended so that Federal grants may reimburse
the States for 50 percent of the necessary cost of proper administration.

Aid to Dependent Children--The Board strongly recommends that grants-in-aid to the States for
aid to dependent children be placed on the 50-percent matching basis already
in effect for the other two programs. At the present time the Federal
Government contributes only one-third of the payments made by the States
to dependent children. As a result, fewer States are participating in
this program, and in many of the States that are participating, the level
of assistance for dependent children is lower than that for the aged and
the blind. The number of old people now being aided through Federal grants
is three times as large as the number of dependent children. But the actual
number of dependent children in need of assistance and eligible under
Federal and State standards is probably fully as large as the number of
needy aged now receiving assistance.

At present the maximum amounts which may be taken into consideration
in making Federal grants are $18 a month for the first child and $12 for
each additional child in the family. The Board recommends that these maximum
limitations be raised to the same maximum as that provided in the case
of needy aged and needy blind.

In addition to these changes in the basis of Federal matching, the Board
recommends that the age limit for dependent children should be raised
in the Federal law from 16 to 18 when the child is regularly attending
school. This would recognize the present desirable tendency for children
to finish high school before seeking permanent employment.

For aid to dependent children the Federal law already provides that the
cost of administration shall be reimbursed by the Federal Government in
the same proportion as the cost of assistance. This should be retained
in placing Federal grants for this program on an equal matching basis.

Public Assistance for Indians--A number of States have a considerable Indian population, some of
whom are still wards of the Federal Government. The Board believes that
with regard to certain Indians for whom the Federal Government is assuming
responsibilities in other respects, and who are in need of old-assistance,
aid to the blind, or aid to dependent children, the Federal Government
should pay the entire cost. If this provision is made, the Board should
be authorized to negotiate cooperative agreements with the proper State
agencies so that aid to these Indians may be given in the same manner
as to other persons in the State, the onlydifference being in
the amount of the Federal contribution. The Board believes that it should
also be given authority to grant funds to the Office of Indian Affairs
for this purpose, if that appears more desirable in certain circumstances.

Variable Grants--Federal grants-in-aid under the three public assistance provisions
of the Social Security Act will total approximately a quarter of a billion
dollars during the current fiscal year. These grants are made to all States
on the same percentage basis, regardless of the varying capacity among
the States to bear their portion of this cost. The result has been wide
differences between the States, both in number of persons aided and average
payments to individuals. Thus, in the case of old-age assistance the number
of persons being aided varies from 54 percent of the population over 65
years of age in the State with the highest proportion to 7 percent in
that with the lowest proportion. Similarly State averages for payments
to needy old people range from about $32 per month to $6. While these
variations may be explained in part on other grounds, there is no question
that they are due in very large measure to the varying economic capacities
of the States.

The Board believes that it is essential to change the present system
of uniform percentage grants to a system whereby the percentage of the
total cost in each State met through a Federal grant would vary in accordance
with the relative economic capacity of the State. There should, however,
be a minimum and maximum limitation to the percentage of the total cost
in a State which will be met through Federal grants. The present system
of uniform percentage grants results at best in an unnecessarily large
amount of money flowing in and out of the Federal Treasury, and at worst
in increasing the inequalities which now exist in the relative economic
capacities of the States.

The Board believes that, with such large sums involved, it would be desirable
to establish an interdepartmental agency representing the various governmental
departments which collect and analyze economic data having a bearing on
the relative economic capacity of the various States. Such an agency could
be given the responsibility of determining the relative economic capacity
of the various States, upon the basis of which thevarying
percentages of Federal grants would be computed.

State Personnel--With regard to requiring States to establish merit systems for the
selection and maintenance of personnel, the Board makes the same recommendations
for public assistance as for unemployment compensation. These--and the
reasons therefore--have already been set forth. It should be noted that
in 19 States public-assistance agencies already operate under a systematic
merit system and that in varying degrees all the States have set up objective
standards of some sort for the selection of public-assistance personnel.
In public assistance, as in unemployment compensation, this provision
would strengthen State administration, safeguard taxpayers and beneficiaries,
and place Federal-State relations on a more stableand
automatic basis.

Disclosure of Confidential Information--The Board recommends that State public-assistance plans be required,
as one of the conditions for the receipt of Federal grants, to include
reasonable regulations governing the custody and use of its records, designed
to protect their confidential character. The Board believes that such
a provision is necessary for efficient administration, and that it is
also essential in order to protect beneficiaries against humiliation and
exploitation such as resulted in some States where the public has had
unrestricted access to official records. Efficient administration depends
to a great extent upon enlisting the full cooperation of both applicants
and other persons who are interviewed in relation to the establishment
of eligibility; this cooperation can only be assured where there is complete
confidence that the information obtained will not be used in any way to
embarrass the individual or jeopardize his interests. Similar considerations
are involved in safeguarding the names and addresses of recipients and
the amount of assistance they receive. Experience has proved that publication
of this information does not serve the avowed purpose of deterring ineligible
persons from applying for assistance. The public interest is amply safeguarded
if this information is available to official bodies.

Administrative Changes--The Board recommends a number of minor technical changes to clarify
and simplify existing Federal public-assistance provisions: Of these the
most important is provision for a different method of settlement with
the States for amounts recovered from the estates of deceased recipients
of old-age assistance. At present the States are not required to make
collections against the estates of deceased recipients; nor does the Board
propose that any such requirement be set up. However, a number of States
do make such collections in accordance with their own plans. The present
method of settlement between the States and the Federal Government in
such cases creates needless administrative difficulties which can readily
be eliminated by permitting the Federal Government to offset its pro rata
share of the amounts recovered against the next payment made by it to
the State.

Health

The Chairman of the Social Security Board is a member of the Interdepartmental
Committee to Coordinate Health and Welfare Activities which has presented
to the President a long-range National Health Program. The Board is of
the opinion that the enactment of the National Health Program would not
only result in meeting more adequately the needs of those now receiving
aid under the Social Security Act, but would also have a material effect
in reducing the future cost of public assistance under the act.

Recommendation V of the National Health Program calls for insurance against
loss of wages during disability not arising out of employment. The Board
believes that adoption of this recommendation would go far toward completing
the protection now afforded workers against loss of wages. The present
State workmen's compensation laws offer protection against loss of wages
resulting from injury arising out of employment. The State unemployment
compensation laws furnish some protection against wage loss due to unemployment.
The Federal old-age insurance system will provide protection against permanent
loss of wages due to old age. But, though some workershave
some protection through voluntary insurance, no comprehensive protection
yet exists against unemployment due to disability not connected with employment.

As already indicated in the discussion of old-age insurance, the Board
believes that if protection against wage loss due to permanent total disability
is provided, it should be linked with that program since permanent disability
is most likely to occur among older workers, and the permanently disabled
worker leaves the labor market in much the same sense as does the aged
person. Another reason for linking permanent total disability with old-age
insurance is that the latter is on a Federal basis. The load would thus
be more evenly distributed among the States than would be possible if
permanent total disability were administered on a State-by-State basis,
since some States have higher proportions of the older persons among whom
disability more frequently occurs.

As regards temporary disability compensation the Board believes that
this can be placed on a State basis following the precedent of unemployment
compensation. The Board recommends that if such a program is inaugurated,
it incorporate taxing and grants-in-aid provisions like those in operation
for unemployment compensation--that is, provision for a uniform, Federal
pay-roll tax against which employers would be permitted to offset a substantial
percentage of their contributions under State laws for this purpose. If
Congress should not wish to levy an additional pay-roll tax at this time,
this offset might be allowed against the present tax levied upon the employer
under the old-age insurance system. But it should be realized that this
would materially reduce the proceeds available for future old-age insurance
benefits. The Board estimates that a system of temporary disability compensation
would involve a cost of approximately 1 percent of wages. If a State levied
a tax of 1 percent payable equally by employers and employees, allowance
to employers of an offset up to 90 percent of a Federal tax of one-half
of 1 percent would be sufficient to enable States to provide temporary
disability compensation, without the risk of unfair competition on the
part of employers in other States that fail pass such legislation. In
order to afford States ample opportunity to enact the necessary legislation,
the Board recommends that Federal action in this field should not be made
effective prior to January 1, 1941.

General

The Board recommends the following amendments of a general character.
These are to a large extent self-explanatory

1. An amendment to prohibit the disclosure of information obtained by
the Board or its employees except under certain restricted conditions
related to proper administration. The provisions which the Board recommends
are similar to those already applicable to the Veterans' Administration.

2. An amendment to confer upon the Social Security Board the power to
issue subpoenas, administer oaths, and examine witnesses and the like
in connection with its administration of the Social Security Act. This
recommendation is in line with the authority conferred on numerous other
administrative agencies, such as the Veterans' Administration, the Federal
Trade Commission, and the Securities and Exchange Commission.

Four years ago I sent to the newly convened Congress a message transmitting
a report of the Committee on Economic Security. In that message I urged
that Congress consider the enactment into law of the program of protection
for our people outlined in that report. The Congress acted upon that recommendation
and today we have the Social Security Act in effect throughout the length
and breadth of our country.

This Act has amply proved its essential soundness. More than two and
one half million needy old people, needy blind persons, and dependent
children are now receiving systematic and humane assistance to the extent
of a half billion dollars a year.

Three and a half million unemployed persons have received out-of-work
benefits amounting to $400,000,000 during the last year.

A Federal old-age insurance system, the largest undertaking of its kind
ever attempted, has been organized and under it there have been set up
individual accounts covering 42,500,000 persons who may be likened to
the policy holders of a private insurance company.

In addition there are the splendid accomplishments in the field of public
health, vocational rehabilitation, maternal and child welfare and related
services, made possible by the Social Security Act.

We have a right to be proud of the progress we have made in the short
time the Social Security Act has been in operation. However, we would
be derelict in our responsibility if we did not take advantage of the
experience we have accumulated to strengthen and extend its provisions.

I submit for your consideration a report of the Social Security Board,
which, at my direction and in accordance with the congressional mandate
contained in the Social Security Act itself, has been assembling data,
and developing ways and means of improving the operation of the Social
Security Act.

I particularly call attention to the desirability of affording greater
old age security. The report suggests a two-fold approach which I believe
to be sound. One way is to begin the payment of monthly old-age insurance
benefits sooner, and to liberalize the benefits to be paid in the early
years. The other way is to make proportionately larger Federal grants-in-aid
to those states with limited fiscal capacities, so that they may provide
more adequate assistance to those in need. This result can and should
be accomplished in such a way as to involve little, if any, additional
cost to the Federal Government. Such a method embodies a principle that
may well be applied to other Federal grants-in-aid.

I also call attention to the desirability of affording greater protection
to dependent children. Here again the report suggests a two-fold approach
which I believe to be sound. One way is to extend our Federal old-age
insurance system so as to provide regular monthly benefits not only to
the aged but also to the dependent children of workers dying before reaching
retirement age. The other way is to liberalize the Federal grants-in-aid
to the states to help finance assistance to dependent children.

As regards both the Federal old-age insurance system and the Federal-State
unemployment compensation system, equity and sound social policy require
that the benefits be extended to all of our people as rapidly as administrative
experience and public understanding permit. Such an extension is particularly
important in the case of the Federal old-age insurance system. Even without
amendment the old-age insurance benefits payable in the early years are
very liberal in comparison with the taxes paid. This is necessarily so
in order that these benefits may accomplish their purpose of forestalling
dependency. But this very fact creates the necessity of extending this
protection to as large a proportion as possible of our employed population
in order to avoid unfair discrimination.

Much of the success of the Social Security Act is due to the fact that
all of the programs contained in this act (with one necessary exception)
are administered by the states themselves, but coordinated and partially
financed by the Federal Government. This method has given us flexible
administration, and has enabled us to put these programs into operation
quickly. However, in some states incompetent and politically dominated
personnel has been distinctly harmful. Therefore, I recommend that the
states be required, as a condition for the receipt of Federal funds, to
establish and maintain a merit system for the selection of personnel.
Such a requirement would represent a protection to the states and citizens
thereof rather than an encroachment by the Federal Government, since it
would automatically promote efficiency and eliminate the necessity for
minute Federal scrutiny of state operations.

I cannot too strongly urge the wisdom of building upon the principles
contained in the present Social Security Act in affording greater protection
to our people, rather than turning to untried and demonstrably unsound
panaceas. As I stated in my message four years ago: "It is overwhelmingly
important to avoid any danger of permanently discrediting the sound and
necessary policy of Federal legislation for economic security by attempting
to apply it on too ambitious a scale before actual experience has provided
guidance for the permanently safe direction of such efforts. The place
of such a fundamental in our future civilization is too precious to be
jeopardized now by the extravagant action."

We shall make the most orderly progress if we look upon social security
as a development toward a goal rather than a finished product. We shall
make the most lasting progress if we recognize that social security can
furnish only a base upon which each one of our citizens may build his
individual security through his own individual efforts.

NOTE: Back in 1934, I created an Advisory Council on Economic Security
to assist the Committee on Economic Security in its investigations which
eventually led to the formulation and adoption of the Social Security
Act in 1935 (see Items 117 and 179, 1934 volume). The Act was based upon
the careful research and the thorough studies and surveys made by both
the Advisory Council and the Committee.

Since the passage of the basic statute, we have had considerable experience
in the administration of the social security program. We had an opportunity
to test the operation of its various features, in order to determine the
directions in which it might be plausible to expand the Act.

In May 1937, another Advisory Council on Social Security was appointed
by the Social Security Board and by a subcommittee of the Senate Committee
on Finance. This body was similar in some respects to the old Advisory
Council which I had created in 1934. It was composed of twenty-five members,
representing employers, employees, and the public; and it concentrated
its attention upon the problems arising out of the operation of the old-age
insurance program.

Throughout 1937 and 1938, the Advisory Council investigated the ways
in which the old-age insurance provisions of the Act could be improved.
At the same time, the Social Security Board itself was carrying on surveys,
and on December 14, 1937, Chairman Altmeyer submitted to me a list of
suggested improvements (see Item 163, and note, 1937 volume). On April
28, 1938, I wrote to Chairman Altmeyer requesting that the Board study
some additional changes in the old-age insurance provisions (see Item
56, and note, 1938 volume).

The "Final Report of the Advisory Council on Social Security,"
dated December 10, 1938, was before the Committee on Finance of the Senate
and the Committee on Ways and Means of the House of Representatives when
they started their deliberations on the Act. The report of the Social
Security Board on the proposed changes in the Act was also referred to
the congressional committees concerned, along with the foregoing message
which I sent to the Congress.

From February 1 until April 7, 1939, the House Ways and Means Committee
held hearings on possible amendments to the Act, and over ninety social
security bills were referred to the Committee. H.R. 6635 finally passed
the House of Representatives on June 10, 1939, by a vote of 361 to 2,
and the bill as amended passed the

Senate on July 13, 1939, by a vote of 57-8. After the adoption of
the conference report, I signed H.R. 6635 on August 10, 1939 as 53.Stat.
1360 (see Item 109, this volume).

Most of the reforms recommended by the Social Security Board were
embodied in the amendments which were passed by the Congress. The following
account outlines changes which the Board advocated, and the extent to
which their suggestions were followed by the Congress:

1. Federal Old-Age Insurance

a. Benefits
The Board recommended that monthly benefit payments start in 1940 instead
of on January 1, 1942, as scheduled. The amendments advanced the date
for beginning payments to January 1, 1940.

Because those retiring in the early years of the operation of the
system would receive very small amounts, the Board suggested that supplementary
benefits be provided for aged wives, and that average wages instead of
total wages be used as a basis for computing benefits. Both these reforms
were carried into effect when the amendments were passed, with aged wives
being granted supplementary benefits totaling one-half of the old-age
insurance benefit of their husbands.

Under the Social Security Act of 1935, single lump-sum cash payments
amounting to 3 ½ percent of the worker's total wages were made
at the time of his death. The Board felt that monthly benefits to widows
and orphans would be preferable. These recommendations were carried out
by the 1939 amendments, which granted monthly benefits to widows who had
reached 65, unmarried dependent orphans under 18, younger widows with
children, and aged dependent parents.

b. Coverage
The Social Security Board recommended that the old-age insurance system
be extended to cover employees in large-scale farming operations, and
that eventually agricultural labor be covered completely. Likewise, it
was advocated that the following groups be covered into the operation
of the Act: domestic service, maritime employment (with the exception
of foreign crews on American vessels engaged in foreign trade), services
performed for religious, educational, charitable and non-profit organizations,
services performed for the federal and state governments or their instrumentalities,
those workers employed after they passed the age of 65, and those workers
performing personal service who did not fall within the term "employee"
as used in this Act.

Under the 1939 amendments, three of the above groups were placed within
the system: maritime workers, those earning wages after they reached 65,
and employees of federal instrumentalities, such as member banks in the
Federal Reserve System.

Several other clarifying amendments were passed, such as the exemption
of foreign governments and their instrumentalities, the exclusion of any
instrumentality wholly state-owned or constitutionally tax-exempt, and
the coverage of an employee performing both excluded and included types
of employment where the latter predominates during a particular pay period.

c. Financing
The Board made no definite recommendations regarding the financing of
the system, beyond stating that if additional funds were needed, they
should be raised by taxes other than those on payrolls.

The 1939 amendments postponed until 1943 the increased taxes to be
paid by employers and employees. Under the original terms of the Act,
the 1 percent old-age insurance tax was to be stepped up to 1 ½
percent during the years 1940, 1941, and 1942. However, the amendments
froze the rate of 1 percent until 1942, thus saving employers and workers
about $275,000,000 in 1940 and $825,000,000 for the three years.

d. Administrative changes
The following recommendations of the Board were enacted in the 1939 amendments:

(1) Employers are now required to make a statement to employees showing
the amount of taxes deducted from their wages under the old-age insurance
system.

(2) The recovery by the Federal Government of incorrect payments to
individuals has been rendered easier.

(3) Provisions have been made respecting the practice of attorneys
and agents before the Board.

(4) Employers are not required to pay taxes on payments they make
under any employer welfare plan providing for retirement benefits, disability
benefits, medical and hospital expenses, etc.

2. Unemployment Compensation

a. Coverage
In general, the Board advocated that coverage be extended to the same
groups which it suggested should be included under the old-age insurance
provisions of the Act. With the passage of the amendments, about 200,000
additional persons, chiefly bank employees, were brought into the unemployment
compensation branch of the system.

b. Financing
The Board felt that certain features of both the old-age insurance and
unemployment compensation sections of the Act should be standardized.
Since, under old-age insurance, only the first $3,000 paid to an employee
is taxed, a similar recommendation was made for unemployment compensation,
and it was embodied in the 1939 amendments. A suggestion that the tax
provisions of the two systems be combined or made identical, in order
to facilitate record-keeping, was not adopted. However, the Board asked
that the taxes for unemployment compensation be imposed on "wages
paid," instead of "wages payable," and when the Congress
adopted this amendment it established the same basis as used in old-age
insurance.

The Board proposed certain liberalizations in the time limit within
which an employer could qualify for the 90 percent credit against the
federal tax by contributing to state unemployment insurance funds. As
asked by the Board, the time limit was extended where the employer has
paid his tax on time, but to the wrong state. Also, the amendments of
1939 saved employers approximately $15,000,000 by providing that they
would receive full credit for delinquent 1936, 1937 and 1938 taxes paid
within sixty days after the passage of the amendments. Other minor changes
eased the stringent provisions governing delinquent taxpayers.

c. Administrative changes
The following recommendations of the Board were subsequently enacted:

(1) As in the case of the old-age insurance provisions of the law,
payments under employer welfare plans are made exempt from taxation.

(2) States are required to establish and maintain a merit system for
the personnel in unemployment compensation agencies, in order to be eligible
for federal grants.

(3) The Board recommended that the administration of unemployment
compensation and of the United States Employment Service should be placed
within a single federal bureau. Under Reorganization Plan No. 1, the United
States Employment Service was transferred from the Department of Labor
to the Federal Security Agency, and its functions were consolidated with
the unemployment compensation functions of the Social Security Board (see
Item 66, this volume).

(4) As in old-age insurance, the language excluding state instrumentalities
is clarified to apply to any instrumentality wholly owned by the states
or political subdivisions thereof, as well as those exempt from tax under
the constitution.

(5) Exemption of foreign governments and their instrumentalities from
the unemployment compensation tax.

(6) States are now required to enact laws providing that expenditures
be in accordance with the provisions of the federal act.

(7) The provisions relating to "merit rating" or "individual
employer experience rating" have been clarified in accordance with
the recommendations of the Social Security Board.

3. Public Assistance

The Board recommended that the present uniform percentage grants be
changed to a system which would take into account the varying economic
capacities of the States. However, no action was taken by the Congress.

a. Old-age assistance, and aid to the blind.
The Board proposed that federal contributions for the administration of
grants-in-aid to the states should be increased. In the 1939 amendments
it was provided that the federal government contribute 50 percent of state
assistance payments to needy aged and blind up to a maximum limit of $40
a month. Inasmuch as the previous limit was $30 a month, the maximum federal
grant per aged or blind persons was thus increased from $15 to $20 per
month.

b. Aid to dependent children. The following recommendations of the
Board were subsequently embodied in the 1939 amendments to the Social
Security Act:

(1) The contribution of the federal government toward state aid to
dependent children was increased from one-third to one-half of the amount
granted to each individual.

(2) Where a child is regularly attending school, the age limit is
raised from 16 to 18 to enable most children to finish high school.

(3) Before the passage of the amendments, the federal government was
limited to contributing $18 per month for the first child and $12 per
month for each child thereafter. The Board suggested a liberalization
of this amount, and now the federal government will pay one-half the amounts
up to an average of $18 per child per month throughout the state.

c. Public assistance for Indians
The Board advocated that the Federal Government reimburse the states for
the entire cost of public assistance to certain Indians. No action was
taken by the Congress upon this recommendation.

d. Maternal and child health services, and services for crippled children.
Although the Social Security Board made no recommendations on these aspects
of public assistance, which are administered by the Children's Bureau
of the Department of Labor, testimony presented to the Senate Committee
holding hearings upon the Wagner national health bill (see Item 17 and
note, this volume) showed the immediate need for expanding assistance
along these lines. Greater amounts of federal money, under the 1939 amendments,
are authorized to be appropriated to assist the states in extending these
services. The total amount authorized to be appropriated for maternal
and child health grants was increased from $3,800,000 to $5,820,000, while
that for crippled children was increased from $2,850,000 to $3,870,000.

The 1939 amendments to those titles of the Act covering aid to the
needy aged, blind, dependent children, maternal and child health services
and services for crippled children provided that approval of state plans
was contingent upon the establishment of personnel standards on a merit
basis.

c. Public health work
The Social Security Board urged the enactment of the National Health Program
presented by the Interdepartmental Committee to Coordinate Health and
Welfare Activities (see Item 17, and note, this volume). The amendments
of 1939 stipulated that the amount authorized to be appropriated for federal
aid to state public health programs should be increased from $8,000,000
to $11,000,000. Following this increase, particular emphasis has been
placed upon developing control of tuberculosis, malaria, cancer, pneumonia,
and industrial hygiene.

4. Vocational Rehabilitation

The Board made no additional recommendations regarding this phase
of the Social Security Act, but the 1939 amendments increased the annual
allotment from $1,938,000 to $4,000,000, to be divided among the states,
Hawaii and Puerto Rico.

(For a discussion of the accomplishments of the Social Security Act,
see Item 107 and note, 1935 volume; and Item 103 and note, 1938 volume.)